The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
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The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
As a farmer and grain marketer Jon provides a practical grain marketing education to farmers. Jon explains how to reduce risk while maximizing profits using storage, market carry and basis. Often real-life trade detail is provided to illustrate unique ways farmers can market their grain in uncertain and volatile markets.
Market Commentary for 8/3/18
Another week with the weekly close for corn and beans not changing much. I suspect everyone is waiting for the Aug 10th USDA report that includes estimated ear weights and yields. I think if the average national yield is 175, $4 Dec corn is likely. Then every bushel above that value decreases Dec futures by 10 cents (i.e. 180 national yield would mean Dec corn at $3.50).
Beans are still caught up in tariff issues while weather continues to be uncertain. There is a lot of risk in both directions right now.
Market Action - Previous Trade Results
Three of my trades expired last Friday. As you can see below, the three trades provided me with relatively low risk potential opportunities to get added premium in a non-profitable, sideways market on some of my corn. In the end, one of the 3 trades added 9 cents of added premium to my ongoing "pot of premium" on 10% of my production and the other two were essentially a wash. While I wish I could have received a bit more added premium, I definitely prefer considering alternative trading solutions that allow me the opportunity to get some added premium over waiting and hoping this market turns around because I don't know when it will.
Following shows all the details and results.
Trade #1 – Sold Call
On 6/18/18 when Sep corn was near $3.65 I sold the following call:
My Trade Thoughts And Rationale On 6/18/18
Since I still need to sell some of my remaining '17 corn but I don’t want to sell $3.65 Sep futures, this trade allows me to get values close to $4 if we rally some. If the market stays sideways, I keep the 9 cent premiums. There isn’t a downside protection with these trades, but that isn't the goal for this trade.
Final Results
Corn closed below $3.80, so I keep the 9 cent premium to add to my pot of premium I've been collecting all year.
Trade #2 – Sold Straddle
On 6/13/18 when Sep corn was around $3.85, I sold an Aug $4 straddle (selling both a put and call) and bought a $3.70 Aug put, collecting 30 cents total on 10% of my 2017 production.
What Does This Mean?
My Trade Thoughts And Rationale On 6/13/18
This trade is most profitable in a sideways market. With the current good weather forecasts, I'd be happy collecting the premium to add to another opportunity later. However, if the market drops significantly I'm also protected from losing money or having to buy corn back with this trade. With what I know today, if the market rallies I'll be very happy with a $4.30 sold price. I'm comfortable with any market outcome of this trade.
Final Results
The market closed below $3.70 so I made and lost nothing on this trade except commissions for placing the trade.
Trade #3 - Sold Straddle
On 6/18/18, 5 days after trade #2, and after a 20 cent drop in corn with Sep futures around $3.65, I sold an Aug $3.70 straddle (sold both the put and the call) and collected 29 cents total on 10% of my production
What Does This Mean?
My Trade Thoughts And Rationale On 6/18/18
Like Trade #2, this trade is most profitable in a sideways market. But unlike Trade #2, there are no puts in place to protect my downside. I think a 20-30 cent range is likely. Since I'm behind in my sales and I want the market to rally, I would be fine potentially losing a little on the upside potential. Regardless, this trade only represents 10% of my '17 production, so I'm comfortable with any outcome.
Final Results
On 7/18/18, when Sep corn was trading at $3.47, I bought back the put portion of the straddle for 25 cents. 13 of the last 15 years corn prices decreased from mid-July to the end of July, so I thought there was a good chance prices would fall below $3.41, and I would then have to take a loss on the trade. Instead, after commissions and buying back the call for 25 cents that I had originally sold for 29 cents I profited about 3 cent in the end. Those profits managed to cover the commissions in the previous trade and is why these two trades ended up being a wash.
Market Action - New Trades I Just Placed And Rationale
As stated above, when the market is down and many signs indicate continued sideways activity, rather than doing nothing and waiting, I prefer to consistently seek alternative trading solutions that provide relatively lower risk opportunities that could add premium to my grain marketing. That being said, on all trades I do I know all potential outcomes for any market scenario (up, down and sideways) and I'm willing to accept all three, or I don't place the trade.
Following details some recent trades including all the details and rationale.
New Trade #1 – Sold Straddle
On 7/18/18 when Sep corn was around $3.48, I sold an Sep $3.45 straddle (selling both a put and call) and bought a $3.30 Sep put, collecting 15 cents total on 10% of my 2017 production.
What Does This Mean?
My Trade Thoughts And Rationale On 7/18/18
This trade is most profitable in a sideways market. With the current good weather forecasts, I'd be happy collecting the premium to add to another opportunity later. However, if the market drops significantly I'm also protected from losing money or having to buy corn back with this trade. With what I know today, I would prefer the market rally and I'll be very happy with a $3.60 sold price because I have a lot of different trades already working that need prices to be above $3.60. I'm comfortable with any market outcome with this trade.
New Trade #2 – Sold Call
On 7/19/18 when Sep corn was near $3.51 I sold the following call:
My Trade Thoughts And Rationale On 7/19/18
Since I still needed to sell some of my remaining '17 corn, but I don’t want to sell $3.50 Sep futures, this trade allows me to get a slightly higher value. If the market stays sideways, I keep the 10 cent premiums. There isn’t a downside protection with these trades but that wasn’t what I was trying to accomplish with this trade either.
My Overall ’17 Crop Position
45% of my '17 crop is still unpriced. With the new trades above and others already in place, that 45% is covered with different option strategies making my final position vary depending on the Sep futures price on 8/24.
If Sep futures are:
With Sep futures prices around the $3.65 level and the USDA crop report on Aug 10th I have a plan that is ready for a range of prices. Like all farmers I hope prices rally, because I would like to finish up sales on the ’17 crop before September 1st.
To get my enewsletter sent directly to you every week, send me an email: jon@superiorfeed.com
Jon Scheve
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387
Tel: 952-442-2380
Cell: 402-681-4867
Fax: 952-442-4945
This email material is for the sole use of the intended recipient, and cannot be reproduced, disseminated, distributed or electronically transmitted, including any attachments, without the prior written permission of Superior Feed Ingredients, LLC.. Even though the information contained herein is believed to be reliable, we cannot guarantee its accuracy or completeness, and the views and opinions expressed are subject to change without notice. Trading commodities involves risk and one should fully understand those risks before buying or selling futures or options. This data is provided for information purposes only and is not intended to be used for specific trading strategies.
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