What is in this article?:
- Corn prices -- don't look a gift horse in the mouth
- Time to make decisions
- It's decision-making time for those marketing corn, grain analyst Richard Brock says. Look for a combination of crop insurance, hedge-to-arrive contracts and call and put options.
- Rapidly improving corn genetics have kept corn yield respectable through several years of unfavorable weather. If there is ever a year when everything goes right, yields could respond in a big way.
- The Midwest is setting up for a good year if the weather cooperates. The region has ample soil moisture and fertilizer applications have been made.
Time to make decisions
It’s decision-making time for marketers, Brock says. “The time is right now. Markets are anticipatory. They’re based on what’s about to happen, not what already has. Once the crop gets in the ground, opportunities are going to be gone.”
To lock in corn prices, Brock says to look at a combination of crop insurance, hedge-to-arrive contracts and call and put options.
“Crop revenue insurance should fly off the shelves,” according to Brock. “Your price for corn is determined by the average of December futures during February. Because of the bull spread market, we’re probably going to average $5.93. If you buy a 70 percent policy, it’s going to be expensive. But you’ll have a floor under your crop at that price. Then I’m going to either a hedge-to-arrive contract or hedge it myself on the other 30 percent. You can put a floor under 100 percent of your crop and you still have the upside left.”
Brock says buying out-of-the-money calls only “is probably not going to work. If you want to protect yourself on the upside, you have to buy calls and sell some out-of-the money puts to help you finance it. The premiums are just too high to buy calls or puts. Eighty percent of the time, you’re going to lose whatever you pay for them anyway.”
Grain storage may not be a good option this year, Brock adds. “The market is telling producers that it doesn’t pay to store corn this year. In order for grain storage to work, you have to have a carrying charge market. Storage is not going to pay. Just because you have a bin doesn’t mean you have to use it.”
Brocks advised producers to “get everything sold for late August and early September delivery, take advantage of this premium, then rent the bins to your neighbor who didn’t figure it out.
“Southern farmers have a huge advantage over Midwest farmers. You have a premium market because your crop comes off early. Don’t look this gift horse in the mouth and not take advantage of it. It’s an incredible opportunity.”