If you aren’t using options in your marketing strategy, you are falling behind.
Last week, an article came out highlighting that few farmers own and use futures and options accounts. Honestly, it still surprises me that in 2024, more producers haven’t adopted these tools—especially options strategies.
With farm and livestock operations under more pressure than ever to embrace efficiency and adapt to evolving production and management practices—all while navigating dynamic, volatile, and unpredictable markets—not using options feels like leaving your operation overly exposed.
The purpose of options
One of my favorite bad excuses I hear from a farmer who is using futures and options is they deem them “too risky” or “too much of a gamble.” The irony? The same producer often has a significant portion of their inputs purchased with little, if any, production sold or protected from downside price risk.
Let’s clear something up, if using these tools is “adding price risk” you are probably using them incorrectly. When applied properly, futures and options strategies should reduce and define risk exposure, helping you protect a return on the hard work and the investment you put into raising a crop each year.
The whole point of futures and options is to transfer price risk to a third party. The fear of “too risky” usually comes from horror stories we’ve all heard of someone losing the farm because of a “paper position gone wrong.” But here’s the truth: those disasters don’t happen because the tools failed the user. They more often happen because the tools were misused, whether through taking on too much risk, relying on bad advice, or trying and failing to predict market direction.
Are we trading or hedging?
Whenever I sit down with someone considering a futures or options account, the first question I ask is: Are we trading or hedging? The answer to this question sets the tone for everything else.
Let’s break it down.
- Trading is all about being “in and out” of positions, with no physical bushels to defend. It’s purely speculative, and success is based on the outcome of each trade.
- Hedging, on the other hand, is about protecting a specific price for a physical bushel you own or plan to produce. Success isn’t about making or losing money on the hedge itself. It’s about whether the hedge effectively protected the price you wanted.
Understanding this difference is critical. If we are hedging, the goal isn’t to predict the market. The goal is to manage risk and defend a specific price.
Do you need to use futures?
Not every operation needs to use futures, and I’m not going to pretend you should. If you know where and when you’re delivering your grain, there’s often little reason to mess with them.
But for farmers who want more control and flexibility, futures can make a lot of sense. My customers who use them aren’t locked into delivering to a specific ethanol plant, elevator, or feed yard. They have the flexibility to deliver right out of the field if basis is favorable, or they can roll the hedge to a later month, capturing carry and waiting for better basis opportunities.
If that sounds appealing to you, futures might be a good fit. Just remember, using futures means managing margin calls and working closely with your lender and business partners.
Why options are a game changer
Options, though? This is where I believe every farmer can benefit and justify having their own futures & options account. No other tool gives farmers the ability to broadly manage price risk with the flexibility they need to confidently make difficult marketing decisions in the face of uncertain production environments. Adding options strategies to your marketing plan empowers you to execute your marketing plans. If you’re not using option strategies, you’re behind the times. It’s just that plain and simple.
Position for success
Too much of the farm marketing world gets caught up in the flair of big-shot traders and price predictors. If you’ve been disappointed by their advice—or your own attempts to predict markets, it is time to shift gears.
Let’s face it, the future of grain and livestock markets is as unpredictable now as it ever has been. That’s why you need strategies and tools that let you execute confidently, no matter what the future has in store. It’s time to position for success and take your marketing to the next level.
The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.