NEW CROP CORN HEDGE RECOMMENDATION

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.

Dec corn is now +60 cents off the recent lows.

Now back in the top 25% of prices we have had all year long following the 80 cent melt down.

So we feel like this warrants managing some risk. Especially for those that need to move stuff off the combine. You should be more proactive than those who do not need to.

Below are some ways you can manage your risk at these levels depending on your local basis.

1) If your local basis is attractive:

You could consider making a cash sale.

If you would like to keep upside exposure, you could consider the following trade as a way to re-own potential upside.

Buying the $5.00/$5.70 call spread
Selling the $4.60 put

The net cost is around 1 cent currently. So it is a cost effective way to keep upside potential. However it does involve margin.

What this does:

This gives you a max upside of $5.70.

While your calls pay you penny for penny between $5.00 to $5.70 at expiration.

If we drop below $4.60 you re-own your cash sale via long futures.

2) If your local basis is weak and you think it will improve:

Instead of making a cash sale, you could consider the following hedge.

Since you are not making a cash sale, you need to protect your downside.

Buy $4.70/$4.20 put spread
Sell $5.30 call

Net cost is approximately 2 ½ cents right now. So it is another cost effective way to protect your downside.

What this does:

Since you sold the $5.30 call, it allows you to sell corn at $5.30. But that is your max upside.

You have protection between $4.70 to $4.20 at expiration. As that was your put spread.

You are protected all the way down to $4.20.

Some of these strategies may or may not be fit for your operation. As every operation requires a different approach. If you would like to talk with us about these strategies or how you can manage your risk please give us a call or a text.

Office: (806)484-1214