The coming weeks will likely bring plenty of volatility to the corn futures markets. Monday’s Quarterly Stocks and Planted Acreage reports will be followed by a shortened trading week since markets close Friday to observe Independence Day.
Returning from the three-day holiday weekend, traders will be focused on summer weather forecasts. A bullish or bearish USDA report or weather forecast could send the corn market screaming higher or continue the trend lower.
What’s happened
Last week I discussed the growing short position that the managed money fund traders have amassed in the corn market. Will they continue to add on to short positions and push corn prices below $4? Or will a surprise friendly piece of fundamental news make them do an about face, and exit short positions?
How does a farmer manage this market uncertainty? Current prices are unattractive for producers to consider making cash sales. Plus, it is still early enough in the growing season that it may be hard to market what you are unsure will grow. It makes forward contracting at your local elevator potentially uneasy because if the crop doesn’t grow, you’re still on the hook to deliver corn to the elevator.
Looking for a way to potentially manage risk just in case fund traders continue to bully prices lower? 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, you should measure the pros and cons. Let’s first explain what a short-dated option is and how it works.
From a marketing perspective
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.
The biggest reason to use the short-dated put option is in front of critical time windows. Short-dated options are advantageous ahead of major reports or getting through a critical weather forecast time window.
For example, if you were to buy a 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 than Nov. 21. Therefore, you’re paying less time value in the cost of the option premium itself.
- The August short-dated option expires on July 25.
- The September short-dated option expires on Aug. 22.
As a further example of this marketing tool, say you buy a short-dated corn put that, at option expiration, is deep in the money. You may choose to convert or “exercise” this long put into a short futures position. You would then be short the December 2025 corn futures contract from the “strike price” level purchased. If the trend is down and you want to stay short futures, you now have time to hold the position through the last trading day for December 2025 futures.
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).
- Before purchasing or selling short-dated options, make sure you have conversations with those who understand how they work and costs involved to help guide you through the decision-making process. Ask lots of questions and get the answers you need before entering any position.
Like any tool in your toolbox, options can be dangerous if not used properly. Knowledge is power. Having knowledge of when and how to use short-dated options provides you with leverage in your decision-making process.
Reach Naomi Blohm at 800-334-9779, on X: @naomiblohm, and at naomi@totalfarmmarketing.com.
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