Grain markets don’t close for planting

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This planting season has not been easy on many. April was wet across the Corn Belt, not allowing farmers to plant the crop as early as they preferred.

Weather delays led to a May 12 planting progress report that was well behind last year, with corn 49% planted (54% average and 60% last year) and beans 35% planted (34% average and 45% last year). The planting pace was able to catch up May 12 – 19 with an additional 21% of the corn crop and 17% of the bean crop going in.

Although the second half of May had plenty of moisture, the trade is expecting we will stay even with the average planting pace. Obviously, a slow spring can affect yields, but should it affect your personal marketing plan?

Marketing your crop can be difficult no matter the time of the year, but the task can become extra stressful when you don’t have all your seed in the ground. Farmers start to ask themselves:

How will this “late” planting affect my estimated production?
How many holes will I have in the field from where water sat too long?
Am I even going to get all my acres in?

Cash sales + Options = Flexibility

It is common for farmers to let attention slip from the markets until their crops emerge. Though it’s tough to market a crop with so many unknowns, it can be done. The first step is to have a flexible plan in place.

Using a combination of cash sales and options can give producers the flexibility they need to react to whatever growing season we experience this year.

Buying puts allows you to lock in a floor price but still have complete upside open in case we rally. Unlike cash sales, puts are also extremely easy to get out of if your estimated production goes down due to the late planting season.

What happens if we rally and the floor price you locked in is now way lower than the market? You can increase your floor price for a known cost at any point.

Maybe this is the lowest price we will see for the rest of the year. In that case, you did spend some money on the puts, but you can sell your crop at a higher price.
Maybe we are at the highest price we will see from now on. In that case, you will be happy to have floors in place.

The flexibility put options provide is extremely important in volatile markets.

Given the trade’s anticipation of growing national and global stocks in the coming year, it’s crucial to be proactive in your marketing.

If you’ve managed to plant early and are confident about your production, consider making more forward sales (paired with call options) and protecting the rest of your crop with puts.
If you still have a significant portion of your crop to plant, avoid overwhelming yourself with forward sales. Instead, a substantial percentage of puts should be secured to establish a floor price while maintaining flexibility.

In stressful times of the growing season, keeping your marketing plan simple is best. Work with someone you trust, and bounce ideas off each other.

Have a plan and work through some “what if” scenarios. That way, when corn prices do the opposite of what everyone expects, you already know how you are affected and what actions to take.

When you can’t take control of the weather, take control of your marketing plan.

Contact Advance Trading at (800) 747-9021 or go to www.advance-trading.com.

Information provided may include opinions of the author and is subject to the following disclosures:

The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

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