I am 95% sure at this point that the 3 year cycle low in commodities and oil was reached a couple months early on Christmas Eve. Since then, crude oil has rallied 23.9% in just 11 days.
If you are long the oil trade I recommended late last year then congratulations! This was really an easy call to make based on cycles, sentiment readings, seasonals and the belief that the dollar is headed much lower. The collapse in the dollar is one of the reasons I am neutral to mildly bullish grains right now. In the end, I am thinking we will see a lot of inflation in the coming years which should be beneficial to agriculture.
I am 95% sure at this point that the 3 year cycle low in commodities and oil was reached a couple months early on Christmas Eve. Since then, crude oil has rallied 23.9% in just 11 days.
At the previous 3 year cycle low back in 2016, oil rallied 33.5% in the first 11 days exceeding the present rally by quite a bit. If you recall, the previous 3 year cycle low (2016) was particularly brutal. It had been years since I had seen farmers so pessimistic. The pink line represents the length of the initial thrust off the low in oils first daily cycle. In 26 days, oil rallied 63.11% off the lows, taking it straight to the 200 day moving average. That is incredible.
The rally this time could very well also take us to the 200 day moving average. We don't know yet how many days that will be, but if it gets there in 26 days a conservative guess of a 45% gain to around $62 would be what I would say. As crazy as that sounds, it is completely doable. The strongest rallies you will get in any market is the initial thrust out of multi year cycle lows as proven in 2016. The horrible sentiment farmers were feeling due to low grain prices was felt across all commodities then. Every great rally in any asset begins with extreme bearish sentiment.
Don't forget, we also get a boost in our confidence from seasonal readings. Crude oil and Gasoline both show gains when purchased mid January 14 out of the last 15 years.
I am being asked if now is too late to get on the oil trade. I think I have made my position pretty clear that this rally has probably 2 more weeks to go before we reach the first cycle peak. In between, there could be a pretty scary correction. The best way to sleep at night if you are wanting to trade is to get into the trade early which is how cycles help me because it makes the management of the position easier and keeps losses smaller. Mid way through a move, it becomes a lot harder to manage the risk and the emotions. I would recommend participating in this trade one of two ways. One would be by taking a long futures position if we get a pullback which cycle traders refer to as a half cycle low. You wait for a swing low to form, then enter the position. The second way would be by buying an option. I think oil will rally over the next 4-5 months, so an option with time could be very profitable.
We are starting into a new crop year and I have been busy formulating a plan that I think will help you forget what a challenging year 2018 was. I have no prediction about where we will wind up but I do have a plan to follow before you put your corn planter into the ground.
The Carryout Spreadsheet I posted last week shows a doubling of the soybean carryout and a reduction in the corn carryout. This tells me a couple things.
1. Prices on soybeans should have limited upside. South America is having crop problems, but even with that we have a whole lot of soybeans.
2. A shift in acres back to corn won't help the corn carryout number.
The bottom line is that I am not very worried about corn or beans having a run away move to the upside for a LONG time.
In the shorter term however, we are entering a period where prices do tend to rally. This will probably be your last good opportunity to forward price what you intend to grow this year. The chart below highlights 3 times in the year when you should be marketing your grain.
Like my art work? You get the idea. Prices seasonally rise in late winter but you can get enormous spikes in the summer if the weather turns bad. It is too early yet to make any decisions about the markets this summer, but for now we should see prices holding firm, at least into March.
The tables below show that in 13 of the past 15 crop years, corn and soybeans both averaged quite impressive appreciation beginning in January. Corn rallies an average of 20 cents per bushel between January 10 and March 15.
Between January 28 and February 20, Soybeans average a 48 cent gain.
So if the odds favor a rally of some kind, I am not going to be aggressive selling anything yet. In fact, there are triggers out there now that could set the market off quite a bit higher despite the enormous carryout figures I have mentioned and they could all occur at nearly the same time:
1. The South American crop difficulties.
2. Tariffs being lifted permanently
3. The dollar turning lower.
4. Commodities bottoming at their 3 year cycle low
Did I say the dollar is turning lower? The dollar has begun what will become a multi-year cycle decline which will coincide with the 3 year cycle low in commodities. The dollar has pushed against the 200 day moving average (green line). When this support fails, expect the dollar to make a steep drop towards the 50 day moving average (blue). The dollar dropping will help all assets rise in this country, and at the very least should provide support for grains.
So as I mentioned last week, my near term targets for corn are $4.10 and for soybeans $9.71. When we hit these levels, you should consider contracting some grain, and perhaps using the options strategy I have mentioned often here to raise your floor on your crop insurance.
I should also mention something about oil. Last week I suggested this would be a good time to consider hedging your fuel cost for the year. I believe we are probably at the yearly cycle low on oil right now. Moore Research would also agree. They say that oil (and gasoline) bought January 13 and sold April 2 was profitable 14 of the last 15 years. The average gain per barrel is $5.81 per barrel on a 1000 barrel futures contract. Think about that.
For many in the area I serve, and including myself, 2018 was one that many of us will probably chalk up as a learning experience. I know I have. A new crop year is upon us, so it is time to look ahead and see what can be done to make the most we can with what we have.
Probably the best place to start is to look at the carryout spreadsheet. The numbers in the bottom rows reflect what the WASDE report estimates our carryout numbers to be and the soybean numbers are staggering. The USDA estimates we have more than doubled the soybean carryout from 438 Million Bushels to 955 Bushels, and they have also raised the world wide carryout to 115.33 Million Metric Tons. Compare the fields below with the red boxes drawn around them and compare those numbers with last years numbers and you will get a sense of what it is we are up against this year.
So yes, this will be a problem for soybeans when you figure in that we technically still have a tariff situation with China as there is still not a trade agreement. Going forward, rallies will need to be sold, and sold aggressively. I have not seen a strategy that would work any better than what I recommended using back in March of this year. If you recall, I recommended using bear put strategy to set a floor at $10.20 on the beans and at $4.00 on the corn. The strategy cost less than .10 per bushel and gave a much higher floor than the crop insurance provided. It is too early to work this strategy now, but I will be writing about it and meeting with farmers about it between now and March.
I think we will get a chance to set a floor on soybeans around the $9.70 area but it will probably take some sort of summer drought to push beans above that level. If price can get back to $9.70, wouldn't it be nice to set a floor on your expected production and just not worry about it any more?
The corn picture looks more encouraging as the carryout number has been reduced somewhat. Still, if we have a shift to corn acres similar to what we had in bean acres last year, we could find ourselves with an increased carryout number this year. We should be able to lock in a $4.10 number on corn again but the chart looks pretty sloppy right now.
If you received an email from me Monday, you know that I have turned bullish oil. Oil looks to have put in a major cycle low Monday and this would be a great place to place a hedge for your fuel needs for this year.
As I said, this would be a great place to hedge, but it would also be a good speculative trade, either with straight futures or options. I think we could see $60 oil by this summer. 1 oil contract is 1000 barrels, so a rally to $60 from $45 is worth $15,000.
The wisest advice I received from a not so wise marketing guru was "never sell soybeans in June". This advice tends to hold true. If you are a brokerage client of mine you received communications recommending that we sell the option floor strategies we bought back in February and March. Every position made money and did what it was intended to do which was to set a higher floor than what the crop insurance would do and to allow for upside marketing opportunities which cash contracts would not do. We have now reached an interesting time where the grain price cycles are bottoming right at the beginning of the period when grain prices typically soar. It is my feeling that exiting short positions (or taking re-ownership) makes a lot of sense now.
You typically get 2-3 opportunities to sell grain each year. The greatest opportunity typically lies just ahead of us in the June/July weather market.
Weather markets don't complete in May. We are just entering the time for a weather rally to materialize.
The current RSI reading is at the same level as the 3 previous weather rallies.
The daily December Corn chart shows that prices happen to be at our crop insurance base price. I suspect that price will drift far enough below this level by Tuesday's WASDE report that it will trigger a CCI buy signal.
Soybean weather rallies are much different from corn in that they can become prolonged events while corn can start and finish in a matter of weeks. Most of the same technical conditions exist for soybeans that exist for corn this time however and I expect both to rally at the same time as a result.
The bean chart below has several noteworthy things happening:
1. Beans will trigger a buy signal on the CCI index in a matter of days.
2. Beans have broken below the yearly cycle trend line. Rallies into new yearly cycles tend to be very strong (notice the rally in June of last year?).
3. we got a possible hammer candle Friday. Hammering out a bottom is what these indicate.
4. Price has broken below the 200 day moving average but price has just moved into the 200 week moving average on the weekly chart.
The weekly chart reveals even more information:
1. The 200 week moving average tends to act as a support and resistance area for soybeans. I expect we will see prices rebound from here on out.
2. Notice how the 200 week average is beginning to flatten out. This bodes well for soybean prices longer term.
While I don't find sentiment readings particularly useful for soybeans, the optix readings do show that most traders are extremely bearish. There is a lot of room for beans to move higher from here.
How high grain can go this summer remains to be seen. $10.80 Nov soybeans and $4.30 Dec corn would be conservative estimates. The easiest way to take re-ownership of bushels you have already sold would be through a brokerage account.
All eyes and ears from people involved in agriculture will be focused on tomorrows WASDE report coming out at noon EST. I have posted previously the estimated acres from February's report but those numbers are expected to change if the trade experts are to be believed. The grid below shows the estimates from a Reuters poll which shows a drop in corn and an increase in soybean acres. This would be the first time in this countries history that soybean acres exceeded corn acres.
Brazil’s soybean harvest is now 65% complete vs 62% average despite wetter than normal conditions. Yesterday, AgroConsult raised its Brazilian soybean production to 118.9 mmt (new record) vs their February estimate of 117.5 mmt. It is just hard to find any good news that would support soybean prices.
Below are technical charts for corn and soybeans. Once these moving averages, oscillators and what not turn lower, it usually means that the smart money traders have lost interest and have moved on to trade other things. Now tomorrows report could change this for a short while but what usually happens is that it takes extreme weather events (as well as extremely lower prices) to attract buyers back into the market.
The market does not always want to do what we expect or want. That said, if these numbers hold true I would expect higher corn prices and lower soybean prices. If you have not made any pricing moves, I have a few ideas which I have posted below.
On the corn page there are three option strategies that I recommend. These strategies obviously show a bullish bias due to the trade estimates that have been reported.
1. Buy May $3.80 calls now to re-own bushels sold on the recent rally ahead of tomorrows report. These calls are currently trading at around $.0425 cents.
2. Buy September $4.20 calls at $.10 cents as "courage calls" to support making sales this spring or summer. These calls are currently trading at $.145 cents. It would likely require September corn to trade to $3.80 for this order to get filled.
3. Sell December $3.50 puts at $.08. Selling the bottom end of your subsidized revenue insurance protection near the average harvest price of 3 of the last 4 years to generate premium to offset the cost of your MPCI policy or options that you bought. These puts are now at $.07 cents.
The soybean strategies below show a bearish bias due to a good South American harvest kicking into high gear, slow exports domestically and more US acres expected to be planted this spring.
1. Buy the May $10.00 put option today at $.08. These options won't expire until April 20, so they'll protect against USDA, Brazilian and political risk for about 4 more weeks.
2. Buy the November $9.80 put and sell the $10.80 call. Today, this spread would trade for a net cost of zero cents. This puts a net floor in Nov futures @ $9.80 while accepting a ceiling at $10.80.
If you have a commodity broker you are using, feel free to forward this information if you desire to participate in these strategies. If you need a broker, I am happy to help you open an account with me. Just click on this link and follow the instructions. https://www.rjobrien.com/Esign/index.php?broker=37213 Call or email me if you have any questions.
Grain prices have been stellar. Something you don't see very often is for sentiment in the ag sector to outshine every other sector......especially this time of year. The little chart to the right from Sentiment Trader shows the average sentiment levels for different sectors. Let me warn you that there will soon be a huge pendulum swing back the other way. Its not just that everybody is on the ag side of the boat but nobody is on the stock, gold, or bonds side of the boat. Professional traders love selling in overbought sectors and moving their funds into un-liked sectors. While the ag sector is the flavor of the day so to speak, I would expect the big money traders are already accumulating positions in other sectors that are out of favor at the moment.
A few more pieces of the puzzle have come together for the 2018 crop year. We now know what the crop insurance guarantees will be. The base price was set at $3.96 for corn which is identical to 2017 and $10.16 for soybeans which is .03 lower than last year. It is a little weird that these base prices came so close to 2017's base prices. Despite the prices being similar to last year, the volatility factors used to determine the premiums are quite a bit lower. You should expect your crop insurance premiums to be lower as a result.
The chart below left is the December corn chart and the chart to the right is the continuous weekly corn chart going back 3 years. On the 3 year chart, the Stochastics and the RSI indicators are higher than they have been in 3 years.
Optimism is at the second highest level in 5 years! The last time optimism was this bullish was in the summer market of 2016! Seriously folks, this market will run out of buyers soon and the market is going to leave you holding the bag if you don't get something done. If you are afraid to contract through the elevator on a crop you have not planted yet, then consider using the option strategy that I have diagramed further below. You can bail out of those at any moment.
The soybean market looks even more overbought to me than the corn market does. Soybean prices blew threw the summer high on the daily chart to the left, but notice that prices could be reaching some resistance on the weekly chart from the 2016 summer market highs.
The soybean optics have reached overly optimistic levels. Again, the last time bean optics reached these levels was during the 2016 summer market. You have to make sales when prices reach these extremes! Remember the professional traders I mentioned at the beginning of this post? They have already recognized that there is limited upside to these prices in March and are looking for other assets to trade that are bottoming.
As I have said many times already, you have got to sell this crop. What if you have contracted every bushel of grain that you feel comfortable obligating yourself to at the elevator? Then you would want to consider an option strategy such as the ones I have laid out below. I explained these in detail last week so I won't go into a lot of detail now. I will just say that the bump in price has allowed me to raise the floors a level without changing the cost.
If you need a brokerage account, the easiest way I know to open one is to click on the link below to begin the process. It usually takes a day or two to get one opened. You may call me if you have any questions about the plans or general brokerage questions.
After an extremely long period of flat to lower trending market conditions, the grain markets woke up in mid January and have now reached levels where I can make recommendations. My crystal ball is not so good that I can make predictions on where market prices will be 6 months from now but I can spot near term market extremes where prices can turn. We are at one of these times now.
There will be a lot to cover in this post so please bear with me. We are at a crucial time with planting just around the corner and a crop insurance coverage selection to make next month. We have an opportunity to make some grain sales now and I wish to explain why making some sales now would be a wise decision.
Lets begin by looking at the USDA balance sheet. I will start out with corn which is on the bottom left of this chart. The USDA has reduced their estimate of corn acres by nearly 4 million acres for this crop year which still makes this crop larger than the crop planted in 2016. At the bottom center column, you can see that the soybean crop is forecast to be enormous. At nearly 7 million acres more than last year, it is possible that soybean crop acres in the US will surpass corn for the first time. Despite the reduction in corn planted acres, the USDA still forecasts an increase in our domestic carry out. With the increase in soybean acres, the USDA is forecasting a 75% increase in our soybean carry-out this year. Along with the large carry outs, the USDA has lowered what they believe to be average corn prices by as much as 31 cents per bushel and soybean prices by as much as 77 cents per bushel from last year.
DLooking at prices today, corn and soybean prices have moved into levels you could call over-bought. The chart on the left is the December 2018 corn chart which shows how prices typically peak when the CCI moves above then crosses back below 200. This has happened just this week. Also notice how prices have pushed up against the 200 Day Moving Average (green line)? This will act as resistance and keep prices from moving much higher. The weekly corn chart on the right shows similar readings with the RSI and Stochastics. Prices never stay over-bought at these levels very long. Also notice how prices have just pushed up against the 200 Week Moving Average (green line). Folks, with the increase USDA carry-out forecast, I am strongly suggesting that making some corn sales now makes a lot of sense.
The soybean charts looks just as compelling as the corn charts do. While looking at the daily November bean chart on the left, you can see that we have not had a Commodity Channel Index sell signal since the high last summer. Prices have, however, reached last summers high and have broken through slightly. With prices stretched this high above the 200 Day Moving Average (green line), I am not sure there is much upside potential left.
The weekly chart on the right which goes back 3 years shows that once the RSI and Stochastics reach over-bought levels, prices seldom stay there very long. Prices have just now reached over-bought levels.
South America is having a few harvest issues which could keep soybean prices supported a bit longer but because we have good prices right now on soybeans I am recommending that you sell your soybeans aggressively. My recommendation is to get 50% of your new crop soybeans priced at $10.30 the Nov or better. You should also sell 50% of your new crop corn at $3.97 or better.
Besides selling your crop you also have crop insurance decisions to make. Most growers still choose the RP crop insurance at the 80 and 85% levels. There are three events that can occur that could trigger an indemnity payment from RP insurance: 1) Low Yields 2) Low Prices 3) A combination of low yields and low prices. Because nobody knows how the weather will affect crop yields in Kentucky yet, I am going to focus on the price protection aspects of crop insurance.
The price gods have shown favor upon us this year giving us the best prices since last summer for the crop insurance price discovery period. The December corn chart below shows that the base price as of this past Friday is at $3.95. This means that given average yields, your price protection would not begin until corn prices fell below $3.36 with an 85% policy and $3.16 with an 80% policy. These levels are marked on the chart in blue.
The soybean base price is also being set at a time of high prices. The November soybean chart below shows that the base price as of this past Friday is at $10.12. This means that given average yields, your price protection would not begin until soybean prices fell below $8.60 with an 85% policy and $8.10 with an 80% policy. These levels are also marked on the chart in blue.
Although these prices are much improved over last year you may still be in a world of hurt should a major price event occur this year. Don't forget that the USDA has forecasted corn prices to be as low as $3.05 and soybean prices at $8.70.
I am going to ask that you follow along with me on the next two charts which show the same crop insurance information and floors in blue along with a layer of option protection. This is a spread strategy which works just as an add on insurance policy.
Let me address the big red letters and arrows before we go any further. These strategies do cap the prices on corn at $4.50 and soybeans at $11.00. These strategies also involve margin. As long as the prices are at these strike prices or lower you receive back all the margin. If prices go above these levels the crop you are growing goes up in value penny for penny as the margin call increases. You will make the most revenue by paying the maximum in margin because you will be selling corn for $4.50 and soybeans for $11.00. The margin you pay is a great thing to happen! It is simply the ante you pay to hold your position to help you manage your risk. At option expiration you receive all margins you paid in at or under the strike price ($4.50 corn $11.00 soybeans). Because your lender should happily fund the margin for a risk reducing strategy, funding the margin should not be an issue. The reason for the corn call (in red) is to make the floors more affordable. Sure you could just buy the $3.90 put, but at .21 per bushel most people would not buy it.
First lets look at the corn. The cost of the spread would be .10 per bushel. This spread involves buying the $3.90 put, selling the $3.40 put just above your crop insurance floor, and selling the $4.50 call. If you chose to use this strategy then your price protection floor would increase from $3.36 with an 85% policy to $3.90. The $3.90 put minus the cost of .10 means that your actual floor net of premium is still $3.80. That is .75 above the USDA price projection at the lower price of $3.05.
You could actually reduce your crop insurance coverage level to 80% and, depending on your APH, the savings on the crop insurance premium would nearly cover the cost of the spread. If you carry insurance at the 80% level I would recommend dropping the $3.40 put from the strategy which would give the spread a unlimited floor.
The cost of the soybean spread is only .04 per bushel. This spread involves buying the $10.00 put, selling the $8.60 put just above your crop insurance floor and selling the $11.00 call. If you chose to use this strategy then your price protection floor would increase from $8.60 with an 85% policy to $10.00. The $11.00 put minus the cost of .04 means that your actual floor net of premium is still $9.96. That is $1.26 above the USDA price projection at the lower $8.70 price.
You could actually reduce your crop insurance coverage to 80% and, depending on your APH, the savings on the crop insurance premium would nearly cover the cost of the spread. If you carry insurance at the 80% level I would recommend dropping the $3.40 put which would give the spread a unlimited floor.
So how well do these strategies actually work? I recommended the same strategies last year and wrote about them on this website. Had you followed the recommendations, you would have made an additional .443 per bushel on the corn and an additional .36 per bushel on soybeans after the cost of the strategy. Had you actually needed that additional revenue due to low yields, this additional revenue could have made a big difference.
These are advanced options strategies but they are less complicated than your crop insurance policy really. Buying options is no different than a regular insurance policy. They have a value you are protecting (strike price), a time they expire, their price fluctuates with volatility, the terms are all known in advance, and unlike crop insurance, they can be cancelled at any moment by the owner.
If you would like to learn more about this strategy, send me an email or call me.
The most-hated commodity this week is corn, where the Optimism Index dropped to 21 on Thursday.
Corn Sentiment at an extreme. Of course, we have seen that since late August, corn or any commodity can reach an extreme and stay there for a long time.
Statistics show that six months (120 days) after corn reaches such lows, corn showed a positive return 90% of the time, averaging 10.6%. Fundamentals look terrible, but they always do when pessimism has been this prevalent and this persistent in any commodity.
Remember, you are in the arena with people with multi-million dollar research departments who are counting on you selling cheap corn. Here is some sound advice however from multi-billionaire Warren Buffett who said "Be fearful when others are greedy. Be greedy when others are fearful." I will tell you that great rallies are preceded by extreme pessimism.
Close but no cigar would describe how I feel about my call for a bottom back on 8/29. I think I make pretty good market calls but I missed this one by a few points. Corn closed 3/4 of a cent lower on October 20 and December wheat just made a new low November 1, a nickel lower.
I have always said that most of us who are in the market have a very limited skill set relative to the other participants. We are the dumb money when compared to the likes of Goldman Sachs and Archer Daniels Midland. They have multi-million dollar research departments who are very good at what they do. If they were not, they would not be in business very long. Case in point is the low in wheat that I just mentioned.
Wheat bottomed (again) on day 46 of its latest cycle. Normally this cycle would last around 30 days. It slowly melted lower for 3 weeks longer than normal and it felt like 3 months. We are all worn out by it. We feel defeated. We think we are going to lose our arse. Our nerves are shot. Our spouses are pissed. Do you think for a moment that Mr. Goldman or Mr. Sachs don't know this? Of course they know this! They are excited about all this cheap grain they are about to buy, and you are more than relieved that they still want it.
All the tools and tricks of the trade that retail traders can learn about stock and commodity trading from are in the tool kit of every multi-national trading firm. They know what retail traders are going to do before we know what we are going to do. Its because we are human beings, and since God created us, we have all been wired to do the same thing. Its called human nature. We cannot help but kick into fight or flight mode when our emotions kick in. The recognition of this gives the smart money traders a very big advantage over us poor dumb money traders.
One of the tricks of the trade that most of you know about are breakouts and breakdowns. They happen at support and resistance levels. When the price of an asset breaks out, it is free to move higher from a resistance area. If the price of an asset breaks down, it is going to keep moving lower. This is what every trading manual will teach you. It makes me wonder who wrote these things.
Wheat is a classic example. I asked people who would listen not to sell wheat when the price broke below support on Wednesday. The breakdown represents where most of us would give up and become frightened enough to sell our positions. Sometimes they will go lower, but not when sentiment is at extreme lows.
Lets say for the moment that I am a large spec house. I am wanting to get some cheap grain on the books. I put in a few orders to sell enough wheat to push price just below support like what happened Tuesday. How many automated sell orders do you think were hit? Not sure, but it was the second heaviest volume day in the contracts existence. There were a lot of sellers that threw in the towel at that moment. The spec houses bought a lot of cheap wheat that day. Now prices appear to be moving higher again.
If you find yourself short wheat puts and you are feeling upset, scared, or dumb, that is a natural thing to feel. Just remember that your enemies know this also. My recommendation is to fight your human nature and hold this position at least a few days longer to see what develops before doing what the smart money traders want you to do.
Do I think December wheat will reach the $4.75 target by options expiration on November 24? Well, I am doubtful to be honest unless some fresh bullish news is revealed. Do I think this will be a profitable trade? I would say it is likely. Even if you sold your puts later than I originally recommended...like around $4.40, we only need prices to rally 18 cents for you to break even. We are on day one of a new daily cycle. We could get there in a day or two. If this is the bottom, and I am going to say again that it is, we should see this cycle top in about 3 weeks. That would be right about options expiration! That would be a perfect trade!
In February, it was my opinion that we could have a difficult year as far as price goes. The crop insurance guarantees were being set at a low that we had not seen in a very long time, and it was my opinion that if we had an average crop year yield wise with low prices that we would see some farmers have to exit farming.
Because I am also a broker, I was able to design a strategy that only cost a few cents per bushel that raised the guaranteed price floor substantially over what the crop insurance guarantees were going to be. My crop insurance customers were shown this as we discussed insurance for this year, and I wrote about it on this blog back in February. On Friday, October 27, the soybean spread expired. This is the chart from February that diagrams the strategy.
In hindsight, the strategy performed wonderfully! If you participated with this strategy, you had price protection all year at $10.12 net after the cost of the options. The strategy only cost .08 per bushel, but yielded .345 per bushel after the cost was factored in. If you used this for 50 bushels of soybeans, you added $17.25 per acre in revenue to your farm. The strategy actually protected $1.32 per bushel or $66 per acre in revenue that the crop insurance would not touch had we had a major price event. Don't tell me back in June you weren't a little worried. Note that the Fall Harvest Price for crop insurance is being set this month.
The chart below shows the actual outcome of the strategy. The area shaded in yellow depicts the above chart and the time since the strategy was created in the unshaded area to the right. The November options expired Friday with Nov Beans at $9.7675. The horizontal purple line shows where the price floor was set. The blue horizontal line shows where your crop insurance floor was if you had an 85% RP policy.
The Harvest Price Guarantee for corn is also being set this month, but there is still a month to go before the corn spread expires. If prices were set today, the corn strategy would perform even better than the soybean spread on a per acre basis. The spread is worth .36 today. Take that times 150 bushels of corn and the spread is worth $54.00 per acre today. This strategy only cost .057 per bushel or $8.55 per acre.
When we are at a place with tight margins, we really need to consider strategies that give you more protection than your crop insurance does. Most of the farmers in this region of the country are enjoying record yields. If that was not the case this year, it would have been tragic for a lot of farmers. Our yields bailed us out. We cannot always count on out yielding low prices. A strategy such as this does not cost much, and allows you to take control of price risk you face.
Give me a call or an email if you have any questions which I did not address in this post.