What is in this article?:
Good risk management is a must
Russ Keast farms several thousands acres of corn and soybeans near Macedonia, IA, on his family’s century-old farm. He markets much of his corn through his feedyard and hog-finishing operation. So good risk management is a must.
“We don’t look at dollar targets as much as we look at market signals,” he says. “We watch the weekly charts more than the daily charts for macro signals. We try to remain as emotionless as we can.
“We were 75-80% sold on soybeans by the first week in October (cash sales),” he says. “We started and finished those sales mostly in the mid-$9/bu. range. We also sold short calls (to add potential profit to our position), but as the market matured, we were able to get out of them without much of an expense.”
Keast works with a risk-management consultant, Bill Haupts, independent contractor with Russell Associates. Haupts has limited power of attorney to make trades. “I don’t like to deal with a broker,” says Keast. “I work regularly with Bill to develop strategies. We discuss our plan, then he makes trades based on those strategies.”
Following the bullish crop report, Keast and Haupts were waiting for the limit-up rally to settle in before making final decisions, especially with the volatility.
As for corn, Keast sold some early on – “but the markets haven’t given us any long-terms signals to sell.” Much of his crop is marketed through the farm’s feedyard, where he often gets more out of corn through pounds of gain. “We’ve sold corn to our feedyard on a weekly basis and kept our cost of gains in the mid-60¢/lb. range (much lower than the average COG),” he says.
He saw the potential for corn price increases before the October crop report and bought short-term corn call positions to get through the report, he says, adding that some additional profit was taken with the limit-up prices. “We did it to avoid some of our risk in feeding cattle. The strategy worked.”
Keast feels 2010 has been an anomaly. “If you can sell at a price you like, one that produces a profit, you go with it, then start on the next year.”