Disclaimer: there is risk of loss trading futures and options. Past performance does not necessarily indicate future results. This is our opinion and should be treated as such.

First off, we do think the grains as a whole ultimately head higher and hold a lot of potential.

However, short term we are nearing a level where it makes sense to manage your risk especially if you are in that situation where you lack storage, need to move stuff off the combine, or are behind in your marketing. This would be a spot where we’d want to get up or get some protection.

If you are in a comfortable spot and not in one of those situations, we do not want to get carried away with sales or put ourselves into an oversold situation. As we see further potential.

This is our first bean alert since around those July highs.

What could you do?

Our preference is always to use options and to hedge, as it gives you the most flexibility in your marketing.

If you don’t have a hedge account, you could simply consider making another incremental sale here.

If you have a hedge account, there are a few routes you could take.

1) Cash Sale & Re-Own:

If you make a sale and would like to keep your upside open, this would be one strategy to consider.

Sell Nov $12.80 put
Buy Nov $13.40 call
Sell Nov $14.50 call
This gives you a max upside of $14.50, in exchange, you could re-own beans on the board at $12.80. This would be roughly a zero cost trade, but selling options does require margin.

Or another strategy would be:

Sell July $12.80 put
Buy July $13.80 call
Sell July $16.00 call
This would give you upside until $16, in exchange, you could re-own beans on the board 60 cents below the market. This would be roughly a zero cost trade, but selling options does require margin.

2) No Sale & Downside Protection:

If you’d rather not make a sale and simply protect your downside, this would be a different strategy to consider.

We want to ride this thing up as much as possible. So instead of spending a bunch of money putting in a longer term floor we’d rather have a shorter term floor. For example, the July $13.40 put costs 75 cents which is way too expensive. Where as the $13.00 put that expires in 10 days are 11 cents or the $13.20 puts are 20 cents, which would give you a floor of $13.00 until that USDA report. So we prefer shorter term puts.

If you have questions about what you could do or want to discuss your specific situation please feel free to reach out to us anytime.

Office: (806)484-1214