So, you didn’t promote the highs; now what do you do? That’s the query that many producers are asking themselves. In case you are asking your self this query, it may be a very good time to take a break from watching each climate mannequin run and remind your self the place we are and the place costs have come from.
This week final summer season, the December 21 corn futures settled at $3.66 ½ cents, and plenty of within the business had been involved once they may need the chance to promote grain above breakeven ranges. Nicely, quick ahead a yr later, and we are now taking a look at profitability ranges that appeared unthinkable a yr in the past, even after coming off the summer season highs.
With this in thoughts, we might advocate making gross sales on strikes again towards the summer season’s highs. In full disclosure, our recommendation has been to be 50% bought (our common is round $5.00) of anticipated bushels with calls purchased towards it (so our internet must be greater than $5.00). AND we nonetheless have 50% of our crop to market into spring acreage battles.
Zooming in available on the market’s current buying and selling ranges, the market has moved right into a sideways sample caped at what seems just like the summer season excessive of $6.38, with help on the summer season low of $5. 00 ¼. If climate is conducive for a near-trend yield, then we might anticipate the market to stay in a sideways sample by way of the autumn. To benefit from this, you would possibly take into account promoting a straddle.
We advocate contemplating promoting the Dec ’21 Corn 550 straddle. The entry goal could be to gather roughly 88 cents on the commerce. Whenever you promote a straddle, you promote each the put and a name on the identical strike and are amassing the premium.
(There’s margin name threat if you promote a straddle. ) Promoting the Dec ’21 Corn 550 straddle for 88 cents offers you a $6.38 upside breakeven ($5.50 plus the 88 cents collected), whereas the draw back breakeven could be $4.62 ($5.50 minus the 88 cents collected).
At expiration, the nearer to $5.50, the higher the revenue potential of this commerce. On choice expiration day, our revenue for the commerce could be the 88 cents we collected minus the distinction between $5.50 and the futures value on the expiration day. For instance, at $5.75, the gross revenue is $0.88-$0.25, or $0.63. At $5.00, the revenue is $0.88-$0.50, or $0.33.
The threat of dropping cash on the place can be if the December futures are above $6.38 or beneath $4.62 at choice expiration on November 26. If the market occurs to be above the higher breakeven level, you’ll be internet quick Dec ’20 Corn at $6.38, which you might use as a sale for the present advertising yr. Which additionally occurred to be proper at this summer season’s contract excessive. If the market has damaged beneath the decrease breakeven degree, you’ll be internet lengthy December corn at $4.62.
We view this as an appropriate place to threat reownership since this value degree is 37 ½ cents beneath the present summer season low. We consider that the US steadiness sheet will tighten because the US adjusts for the misplaced Brazil manufacturing even when we handle to supply a development yield crop, making this a superb place to personal grain. Learn final week’s weblog posting to learn extra about how slight changes in yield can considerably impression this provide. (Insert a hyperlink to final week’s weblog)
As all the time, be at liberty to contact me immediately at 815-665-0461 or anybody on the AgMarket.Web crew at 844-4AGMRKT. We are right here to assist.