Soybean futures have endured whipsaw trading action over the past two weeks as a major clash of fundamental news continues to consume the marketplace.
What’s happened
Heading into the spring and summer months can sometimes create price volatility for soybean futures. This year, the volatility may prove to be more than normal with the unanswered questions that lie ahead.
- With lower U.S. planted acres likely for soybeans, will the market need to “buy” any last-minute acres?
- Will recent flooding in the eastern Midwest delay spring plantings?
- What will summer weather bring?
- How will demand for U.S. soybeans fare domestically? Internationally?
- What about those international tariffs?
- Will tariff fears cause USDA to adjust export demand lower in upcoming reports?
- Global soybean carryout remains record large, will that trend continue?
In time, the answers to those questions will emerge. In the meantime, how can a farmer ride out the potential volatile price gyrations that likely lie ahead?
From a marketing perspective
The reality is that there is no way to outguess what the markets will do, what a USDA report will say, what geo-political issues may transpire, or what the weather will do. So, let’s get back to marketing basics and put together a strategic approach.
The uncertainty of the size of a soybean crop growing in the fields can be nerve-wracking for any producer. It is hard to market what you are unsure you can deliver.
It makes forward contracting potentially uneasy because if the crop doesn’t grow, you’re still on the hook to deliver soybeans to the elevator. So how can a farmer protect unpriced bushels, in case the soybean futures prices trade lower due to tariff news or the reality of large global supplies?
One way to do that is to buy a put. Remember, if you’re buying a put, you’re protecting a price floor for your grain. And if the market should instead trade higher for some reason, you are not dealing with margin calls and you can take part in the rally with your cash sales. (However, if trade wars continue, or perfect summer weather occurs, you’ll be thankful you have a price floor protected.)
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, there are 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 November 2025 soybean futures prices, yet with a shorter window of time.
For example, if you were to buy a traditional November 2025 soybean put, it would expire on Oct. 24, 2025. With the short-dated options, you are still protecting November 2025 soybean futures prices, but they cost less, because they expire much sooner than Oct. 24. Therefore, you’re paying less time value in the cost of the option premium itself.
- June short-dated option expires on May 23.
- July short-dated option expires on June 20.
- August short-dated option expires on July 25.
Prepare yourself
Full visibility of how 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. A big benefit is that short-dated options can provide farmers an opportunity to reduce out-of-pocket cost and still protect a price floor.
They may be useful for such events as upcoming USDA reports, near-term weather events, or any other situation where protection for a shorter time period may be warranted. Because you’re buying a shorter period of coverage, they cost less and you’ll save money (relative to a traditional option).
History would suggest that the coming weeks will have substantial price volatility for grain futures. Which way prices trade largely depends on Mother Nature, USDA and tariff news.
We can never outguess what a market will do, but using risk management and being prepared to protect value is within your control.
Reach Naomi Blohm at 800-334-9779, on X: @naomiblohm, and at naomi@totalfarmmarketing.com.
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, 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. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer 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. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.