In late August, December 2024 corn futures began a steady price trek higher. By late September, December 2024 corn futures rallied nearly 50 cents. This was a surprising event to many in the industry, considering how bearish market sentiment was back in August. At that time, traders were focused on a record crop growing in Midwest fields and large, 2-billion-bushel carryout.
With hindsight, the rally was due to fund traders beginning to exit their massive record short corn position in early September to show profits on the books for the third quarter. Also supportive was the Federal Reserve’s decision to finally begin lowering interest rates, which pushed the value of the U.S. dollar lower. A lower U.S. dollar then invited more U.S. corn export sales.
As the calendar flipped to October, the rally ran out of steam, with corn prices losing nearly 35 cents. As of this writing, the December 2024 corn futures have found price support near the $4 area.
From a marketing perspective
Harvest is in full swing, and many farmers may be wondering what they should be doing marketing-wise with the corn they are harvesting. Does one sell it off the combine? Or does one store corn at home in bins and hope for bad weather in South America in the coming months to spur U.S. prices higher?
Not sure what to do with your corn in the coming weeks? Here are three simple ideas to consider.
1) Basis contract—If you plan to store corn in your bin at home, be mindful of your local basis levels. In some Midwest locations, basis may currently be attractive, as some grain elevators may want to try to secure as much corn as possible, especially as corn is still relatively on the historically “cheap” side.
Consider looking into cash basis contracts to protect what may be an attractive local basis level. If you commit to this strategy, know that you are required to deliver a set number of bushels to your elevator, with the basis locked in, but the grain is still not fully priced. It is your responsibility to do a final pricing of the contract when you feel the futures price is at your target price. (Essentially, you feel that the corn futures price will ultimately work higher.) Make sure you ask your elevator what fees may be associated with this strategy.
2) Buy a put option—Not interested in making cash sales at this time, yet want to protect current value “just in case” of black swans, larger carryout on the next U.S. Department of Agriculture report or geo-political volatility in the weeks ahead that might sink prices?
Buying a put option (no margin calls) allows you to give yourself a price floor to protect the current value of corn futures prices.
December 2024 put options expire on Nov. 22, 2024, and March 2025 put options expire on Feb. 21, 2025 (and cover enough time to get through the holidays, the big January USDA report, any wild weather in South America and even the February USDA report).
One put protects 5,000 bushels, and the cost varies between 10 to 20 cents per contract (plus commission and fees), depending on the strike price and month incorporated.
For the grain you plan to store in bins at home, this may be an attractive way to have peaceful sleep at night, knowing the value of your grain is protected.
3) Make the cash sale and re-own with a call option. If you make that cash sale, but then fear missing out on higher prices, then consider buying a call option. Buying a call (no margin calls) allows you on paper to be able to participate in any further upward price action, even though the grain has left your farm.
One call covers 5,000 bushels, and the cost varies between 15 to 25 cents per bushel (plus commission and fees), depending on the strike price and month incorporated. March 2025 call options also expire on Feb. 21, 2025.
Prepare yourself
The market volatility that will likely continue to unfold in the coming weeks and months may be extreme with weather-watching and geo-political uncertainty stemming from around the world.
There is no way to out-guess what the market will do, or how prices will respond to any of the above events. You must be strategic with your marketing. Incorporating the above strategies can be of assistance.
If you have questions, you can reach Naomi at [email protected] or find her on twitter @naomiblohm.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. Total Farm Marketing refers to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any of the three companies.
