Although he's “not a fan of options,” Ron Falk changed his tone when the chance to win a new tractor for a year was on the line. And Chris Waymire was cool and calm, showing little emotion when he traded options in a quest for a new combine.
MarketMaxx 2007 brought out expanded corn and soybean marketing strategies for both growers. And their crafty use of call options helped both of them garner grand prizes in the popular corn and soybean marketing game from Corn & Soybean Digest.
Some 7,000 MarketMaxx 2007 players competed in the fun and educational game, designed to help producers improve their grain-marketing skills with no financial risk.
The 2007 game ended Oct. 31, 2007. MarketMaxx 2008 is now underway, providing growers and those with agribusiness interest even greater opportunities to expand their knowledge of using corn and soybean futures and options.
Waymire, Yellow Springs, OH, used corn call options to generate a $5.36.45/bu. average price for his simulated 100,000 bu. of MarketMaxx corn. He won the keys to a new Gleaner R5 or A5 series combine for one year (not to exceed 100 separator hours).
BUT HOW DID he obtain that steep price when corn futures prices, although high, never surpassed $5? “I capitalized on the value of the options,” says Waymire, 43, who grows about 550 acres of corn and 400 acres of soybeans.
Waymire, who sometimes speaks at a regional marketing club, says his strategy took several turns. “Basically, I sold call options throughout the whole year (when prices were high),” he says. “I carried the positions. As the price decreased, I would accept the premium (by buying back the options at a lower price).
“I collected off the options. Then I would wait for the price to go up and hedge in the futures,” he says.
And when corn futures dropped, he sold put options. When they rebounded, he collected a premium by buying them back at a lower rate. This combination of trades produced the $5.36 average.
Falk, 47, Monticello, IL, grows about 1,500 acres each of corn and soybeans. He wound up with a wild ride himself, finally finishing with an average price of $11.92.3/bu. for his simulated 50,000 bu. of MarketMaxx soybeans. His grand prize is one year's use of an AGCO RT or DT series tractor (not to exceed 250 hours).
He started his marketing when USDA planting intentions showed a large increase in corn acres and fewer soybean acres last spring. “I bought all of the November soybean call options I was allowed in the game,” says Falk. “The strike price was about $8. I basically sat on them until I had to get out of them at the end of October.
“At one point early on, they were almost worthless (because prices stayed low). But then the market began to rally and I rode the prices up. I collected off the higher price and the increase in the option value,” he says.
Both growers say the bold strategies weren't something they'd have used with their real-life corn and beans. But with MarketMaxx there was no risk.
“It was a lot easier to pull the trigger when you knew there would be no margin calls,” says Waymire, whose corn averaged about 207 bu./acre in 2007. “There was less emotion when playing with simulated grain compared to how I am with my own grain.
“But that's why I've played MarketMaxx all three years. I like the competition and can learn more about how options and futures function without facing the margin calls,” he says.
PRICE VOLATILITY WAS hard to miss playing MarketMaxx. “The biggest thing you learn is that the markets can work exactly the opposite of where you think they will go,” says Waymire, whose actual corn crop was mostly marketed via hedge-to-arrive contracts that produced a $3.50 average price.
Falk, whose soybean yields were in the 50-60-bu. range for 2007, is “more of an aggressive marketer” with his actual corn and beans, depending more on futures and other forward pricing.
“I'm not a big fan of options,” he says, despite his MarketMaxx options moves. “They're just an insurance policy. I read and follow about a dozen market advisors. I want their opinions, but I don't always follow what they say.”
He learned the basics of marketing from his dad and another grower. “The farmer friend got me interested in the (Chicago) Board of Trade,” says Falk, who turns to the marketing section of Corn & Soybean Digest and about every farm publication he receives.
“Every day I look at markets and regularly make trades,” he says. “Marketing is fun and I enjoy it, especially with this game where it's not my own money.”
To get signed up for MarketMaxx 2008, go to www.MarketMaxx.net. The Web site guides you through setting up your MarketMaxx account, helps with trading your simulated 100,000 bu. of corn and 50,000 bu. of soybeans and provides other information to help you become a better marketer.