You want to insure against a wreck in grain prices. But you may not want to be locked into straight futures or cash forward contracts, or pay the high price of a put-option premium. An options spread, or “fence,” may be the answer.
John Story had about 25% of his expected 2012 corn production marketed by March 2011, two months before the government’s intentional explosion of a Mississippi River levee that flooded his fields in southeastern Missouri. Despite the worst disaster in his region’s history, the deep water didn’t drown his spirits as he geared up for even stronger grain sales this year.
Like corn and soybean futures and put options, calls are offered through the CBOT. You have to search a little more to find options prices, but they’re there. Put and call option prices premiums are listed, based on various futures quotes. According to CME, buying a call option “gives you the right, but not the obligation, to buy a product on the underlying futures contract at a specific price. The underlying futures contract is the one with the same delivery month as the option.”
Keith Dittrich was 17 when he was a farmer activist in the making. Over 30 years later, he chairs the American Corn Growers Association (ACGA), or as it’s safe to say, “the other corn growers’ association.” Dittrich, who farms in Tilden, NE, says the nearly 25-year-old ACGA is still entrenched with its philosophy of getting farm policy handled at the grassroots level.
Here’s the situation: You’re bullish corn and soybeans and storing most of your 2011 crops to wait for a rally into early spring. But with huge price volatility, you consider using put options to protect against an unexpected drop in prices. But do you want to spend the money?
You know the villains – waterhemp, marestail, pigweed and other pilferers of water and soil nutrients. They’re the plants you spend $50/acre to kill, yet zestfully return, especially if these prolific weed-seed producers like waterhemp are allowed to spread 300,000 herbicide-resistant seeds per plant at harvest.
Josh Norris was like many eastern Corn Belt growers who waded through too much rain at planting time in 2011. Delayed planting probably cost him 15-20 bu./acre in corn yield. But thanks to insurance checks for about $90/acre that paid for anticipated corn and soybean losses through a unique new private weather insurance program, trips to the mailbox were happy events. And he has booked all of his corn, beans and wheat in the program for 2012.
Dallas Peterson’s weed-research plots rival the rankest weed-ravaged fields anywhere. And head-high pigweed offers examples of what can happen to corn and soybeans fields if the yield-punishing plants aren’t controlled early.
Taking advantage of new and powerful corn hybrids requires getting the most out of yield-building nitrogen (N). And efficient phosphorus (P), potassium (K) and other soil-nutrient use keeps input costs in line.
For decades American growers have depended heavily on wheat exports. The U.S. is the world’s largest wheat exporter and U.S. Wheat Associates (USW) works to maintain wheat sales to some 100 countries. Exports are why the recent free trade agreements (FTAs) were welcomed with open arms.
After a year of drought, southern plains growers are eager to get their 2012 crop off and running into the winter. But while Oklahoma’s wheat is rated 42% good to excellent, only 21% of the Texas crop is in that category, according to yesterday’s USDA crop progress report.
Ten years ago, a 10¢ move in corn prices was a wild trading day. In 2011, a spike 40¢ up, then 40¢ down is nearly the norm. And such volatility adds volumes to discussions within two informal Nebraska grower groups about 40 miles apart.