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| You can, sometimes it even works to your advantage. It works best if your crystal ball is clear. There are those market scholars who advocate exactly that. One option is called Hedge To Arrive. Sometimes it costs you your shirt, pants, and profit. Then there are basis contracts. Or you sell the grain in October then buy CBOT options for March. Puts or Calls, I'm unclear on which or both to buy. Sometimes that works, sometimes it doesn't. Often its been found that having the grain in hand unencumbered by daily elevator storage costs allows the most opportune sales at the best price. Otherwise you can deliver the grain to the elevator and get a warehouse receipt (last couple years I've had to insist to actually get a receipt) and pay drying and storage until the price gets up to what you want to pay. Sometimes that works, sometimes the daily storage, the added shrink of 1% more drying for storage and that added drying cost eats your profits.
Right now at the local (to my farm) elevator, it will cost 19.6 cents to hold corn from the end of October to January. And today the price differential is 22 cents so it will pay 2.4 cents a bushel to sell for January delivery if you can hold off delivering until the end of October. Its worth 4 cents more to hold until March, or 26 cents a bushel which can go a long ways towards all the expenses of owning a bin if your volume will make it pay. At the elevator it will cost 5 cents to pay storage from January 1 to March 1, so that spread doesn't pay. Likely those prices and spreads will be different tomorrow as the local elevator's basis changes differently than CBOT.
Besides the uncertainty and the requirement for significant cash investment, my objections to using options is that one contract is more corn than I have to back up the sale, then if I wanted to play the options game, its not necessary to have grown the corn, just play the options market and forget production. But I like having a shirt on my back some days because in the pit, for every options winner there has to be options that lost the same amount of cash. Those who play them daily will beat my bids every time. And so I'd loose.
Gerald J. | |
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Can you use options instead of building more tanks?
