GRAIN
MARKETS
2018 crop will be in the ground in 150 days — time to market is now
over $ 4.17 then dropping to new lows of $ 3.45 in the Dec at the end of August and then again in the second week of October the day the report was released . Today , prices are once again at those levels for September and December of 2018 futures and should be considered again as a point to start discussing and even putting together a marketing plan for the crop to be planted this coming spring .
For some , a combination of futures only and cash sales may be their desired place to start marketing the 2018 crop . For others , a combination of cash sales together with minimum price contracts ( utilizing Puts ) or guaranteed minimum price contracts ( selling cash , buying calls or bull call spreads ) may fit their program even better . Because of weak market volatility in options , the price / efficiency of options are at some of the most advantageous levels we ’ ve seen in over a decade , providing cost efficient price protection while allowing the producer to remain open to more advantageous price movement . The tools that are the pieces making up these strategies are very transparent in a very liquid market , ensuring the participants know exactly what their risk is and all the costs involved in executing those strategies . These strategies are also easily modified and amended if there is an unfortunate production related issue versus other structure based products . With lower option volatility , the options based strategies offer the most flexibility , efficiency , and transparency to the producer versus straight cash or non-exchange traded structured products . The team at United Ag will work with you to help you better understand the various products available , how each of them work and which of these tools may best fit your marketing program .
Those with cotton production should review using these same exchanges traded option products for the 2018 cotton crop . United Ag assisted some producers in the utilization of price protection like that used in row crops allowing producers to manage their cotton price risk considering the volatile cotton markets seen this year . In cotton , this time last year Dec futures were trading at $ 0.7095 hit a high on March 20 , 2017 of $ 0.7572 then a low of $ 0.6630 on July 13 , 2017 . In the month of October , the market has stayed in a range between $ 0.6700 to $ 0.6900 . Where is Dec 2018 price today - $ 0.6813 , since Jan 1 the high has been up to $ 0.7310 while the low has been $ 0.6630 . Implied volatility for the Dec of 2018 Puts are at levels that should be seriously considered . Example – the Dec of 2018 $ 0.6700 Puts are trading below $ 0.04 per pound . So today you would have the ability to place a downside price floor on Dec of 2018 cotton futures at the $ 0.6700 price level for a cost of $ 0.0400 per pound . These basic tools again like corn mentioned above allow a floor in a market that is liquid and very transparent with the ability to participate in advantageous upside price movement .
Though the market today has harvest to keep an eye on through the beginning of November , we are already starting to talk about the weather concerns in South America . Dry weather in parts of Northern and Central Brazil is preventing a good start to the planting season on beans — this area is crucial to get planted on time as it is also that of the second corn crop , safrinha , that makes up for roughly 655 of the total Brazil corn crop . In Southern Brazil and Argentina weather has been abundantly wet and has some estimates suggesting a third of that Brazil crop is in jeopardy . The Southern Brazil crop makes up for 35 percent of the total crop so 30 percent of that crop pencils into roughly 10 percent of the total corn crop potentially in trouble .
As we finish harvest we move on to starting another cycle of acreage talk , corn / bean ratios , weather scenarios and all the rest of the normal pieces that provide input into the trade and in many cases , guide it in some path . The market as it does every year will offer opportunities to market product at favorable levels , the key is to realize there is risk between now and that level and strive to better understand and appreciate how best to handle that risk .
My dad always said , kind of jokingly , there are two things in life that are always certain — death and taxes . We know we have to pay them and we all know someday we ’ ll to be called to end our time on earth . Unlike those to certainties , price and price action are and will remain unpredictable . We can all have an opinion , no one knows nor can predict where prices will or are going . Marketing can be the one thing many producers admit they enjoy the least in their operations . Search out and use those resources you have available to help manage the unknown , to help manage the growth and prosperity of your production business . One resource that you have today , and own a piece of as a member , is your United Agricultural Coop — its team of grain and cotton merchandisers / marketing assistance . Visit with them and discuss some of the possible scenarios we touched on above to better understand if these tools are possibly right for you to include in your 2018 / 19 crop year . If asked I will gladly assist with them to help you as well in the development of a plan and a better understanding of the various products available .
Until next time , thanks for listening and please do not hesitate to email me with questions at pdubravec @ advance-trading . com . Have a great Halloween and more importantly a Blessed and Happy Thanksgiving this fall !