Corn prices may be at a crossroads heading into the New Year. Is the recent rally coming to an end or just beginning? The next two weeks will likely provide incredible fundamental insight for corn prices.
Be ready for anything!
What’s happened
The recent rally in corn has been thanks to strong demand. Demand for corn that was harvested this fall remains strong with robust ethanol bids, and strong export sales. Many importing nations took advantage of cheap $4 corn at harvest.
Yet, as the calendar flips to January, plenty of uncertainty looms for corn prices.
All eyes are now focused on the Jan. 10 USDA report. Will this report offer a glimmer of additional price rally hope? Or will the report show sufficient domestic and global supplies – bringing the rally to a halt?
This report is often dubbed as “the big one” and is associated with dramatic price reaction. It can have plenty of twists and turns in the supply and demand categories, both on the domestic and global front.
Implementing a strategic approach is paramount heading into this report.
Nearby corn futures are approaching overbought levels on daily charts, and any negative news from the USDA could spark a price sell off. Or, the USDA might surprise us with friendly news: lower yield numbers on the recently harvested U.S. crop and strong demand numbers. Such news could make for tighter ending stocks and a reason to continue the rally.
From a marketing perspective
Be ready for anything in this report. Here are some strategies you can incorporate into your farm marketing plan ahead of the January WASDE report.
What if it’s bullish? If you have sold cash corn recently and would feel frustrated if prices rallied in the coming weeks after you just sold your corn, then consider buying a call option. This allows you to retain ownership on paper.
When you buy a call option, you pay an option premium up front (plus commissions and fees). There is no margin call, and if futures prices trade higher, the call option has the ability to gain value along with a futures price move higher.
You can buy a call option for a specific amount of time. The cost of call options increases as you lengthen the time period you purchase.
Need something short term? Just to get you through the report? Consider implementing a February serial call option. They are based on March 2025 corn futures, and they expire on Jan. 24, 2025. The cost is significantly less than other traditional call options because they expire quite soon, in less than three weeks.
What if the report is bearish? Is there a way to protect unpriced 2024 corn? If you have corn in the bin and want to protect against potential lower price values in case the USDA report springs a bearish surprise, then consider buying a February serial put option, which expires Jan. 24, 2025.
If you want more time to see how the weather in South America fares, and still protect unpriced bushels in the bin, then consider buying a March put option, which expires Feb. 21, 2025. The cost is the option premium, plus commission and fees. No margin calls.
Remember, if you’re buying a put, you’re protecting a price floor for your grain. If the market instead trades higher due to a bullish surprise, you are not dealing with margin calls and you are able to take part in the rally with your cash sales.
Protect unpriced new crop 2025 corn. Consider price protection with a short-dated put. Short-dated options are gaining more relevance and importance as a tool you might employ to help shift risk or manage opportunity. As with any marketing tool, it carries pros and cons that need to be measured.
Let’s first explain what a short-dated option is and how it works.
The term “short-dated” refers to a shorter window before the option’s traditional last trading day, otherwise known as option expiration. You’re able to protect new crop December 2025 corn futures prices, yet with a shorter window of time. You pay a one-time premium for the option itself (plus commission and fees), and there are no margin calls.
For example, if you were to buy traditional December 2025 corn put, it would expire on Nov. 21, 2025. With the short-dated options, you are still protecting December 2025 corn futures prices, but they cost less because they expire much sooner. Therefore, you’re paying less time value in the cost of the option premium itself.
Here’s how that works.
- The March short-dated option expires on Feb. 21, 2025.
- The April short-dated option expires on March 21, 2025.
- The May short-dated option expires on April 25, 2025.
Full visibility of how serial options and short-dated options work (puts or calls and whether it is purchased or sold) and the associated risks are critical to understand for proper implementation.
They may be useful for such events as upcoming USDA reports, near-term weather events, or any other situation where protection for a shorter period may be warranted. Because you’re buying a shorter period of coverage, they cost less, and you save money (relative to a traditional option).
Prepare yourself
We can never guess what a market will do, what a USDA report will say, what Mother Nature has in store for us or the uncertainty of geo-politics. But using risk management and being prepared to protect value is something within your control.
Reach Naomi Blohm at 800-334-9779, on X: @naomiblohm, and at naomi@totalfarmmarketing.com.
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