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SC Iowa | The more likely scenario is that we've now postponed the lows for up to a month at the soonest, and possibly quite a bit longer....The trade is aware of the need for a large crop with the projected demand base---and was willing to bet we were on our way to an even LARGER crop in late May and early June.....since then, we've nicked some places with weather issues, and in beans, are struggling to get the last of the crop in the ground.....tie that in with the 1983/2010 analog for moving from an El Nino to La Nina conditions, and the first period of dryness will be met with concern about whether we just broke out to good growing conditions, or started a drought!!
Strategy?? Depends a lot on how much you have sold, individual crop prospects, etc..
Let's say you are under-marketed on new crop production...but worried about that La Nina scenario.....you could start off buying a 4.00-4.50 vertical call spread for about 11 cents...or the 4.00--5.00 spread for 17 cents......then, see if we can get the December contract back into the upper 3.90's at which point I would consider additional new crop sales....I view that $4 mark pretty difficult to break, but have to respect that it is still early in the growing season and lots of things can happen.....so, if the plan works, you buy the call spread, sell the corn in the 3.95-4.00 and are on board for higher price levels if weather changes for the worse in mid to late summer...
The call spread is also a strategy to consider if you are heavily marketed on new crop and have a good crop revenue policy......at some point, you recognize that your total net farm revenue may go down if prices go up from certain levels....the hard part is crafting a strategy that allows net farm revenue to move to a neutral position, and at excellent gross income levels.
Ray J | |
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Have we seen the lows?
