As the calendar gets ready to flip to February, more uncertainty and volatility lie ahead for the grain markets.
What’s happened
We have many aspects to continually monitor because they can push prices up or down.
The coming weeks and months will likely continue to be volatile as traders monitor Fed decisions regarding global weather, interest rates, geo-political turmoil, potential tariffs and trade wars – on how each may impact demand for U.S. grain.
While it can be easy to sit back and do nothing, marketing opportunities and potential risks lie ahead.
From a marketing perspective
The key is to understand that you can manage volatility by positioning yourself for both higher and lower prices, regardless of the outlook. Let’s be honest, none of us know what the future holds for grain prices in the short term. A strategic approach allows you to be mentally and emotionally ready for whatever the market does in the coming months.
For grain farmers, this potentially means that you take advantage of this recent price rally with a forward contract at your local grain elevator/ethanol plant. Consider using this rally to capture the higher prices on approximately half your crop. Regarding the other half that is not priced, consider purchasing put options to protect against a price drop should the weather improve in South America, or the geo-political climate takes a nasty shift.
Put options protect a price floor when purchased. Puts give you the right (not the obligation) to be a hedger (seller of futures). If futures prices decline, you can either exercise/change your put into a short futures or sell/exit the put you own.
What if prices rally? Your put will lose value, but keep in mind, the other half of your expected crop production is still unpriced and can increase in value.
Forward contracted bushels cannot participate in a price rally. However, if you purchase call options on those bushels, you have re-ownership. Call options can participate in a price rally and, if they have value, can be sold or converted into a long futures position.
The end goal is to position yourself so no matter how the market moves you are able to participate in a price rally or protect yourself from a decline for all your expected production. This helps pull emotion out of your marketing plan and allows you to have confidence in your marketing decisions.
Of course, these strategies require management and should be discussed thoroughly with your advisor. Make sure you’re implementing marketing strategies that best fit your risk tolerance.
Prepare yourself
Do not be complacent. We cannot outguess how markets will move or respond. Every day could bring a new opportunity – or a new risk. Manage the risk and manage the volatility with a strategic marketing approach.
Reach Naomi Blohm at 800-334-9779, on X: @naomiblohm, and at naomi@totalfarmmarketing.com.
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