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How did Jon Scheve average over $4 2018 corn?

By Jon Scheve, Superior Feed Ingredients, LLC

On 4/23/19, when the corn board was in free-fall, I priced my remaining 2018 crop on futures. I didn’t set a cash price, and instead I was waiting for a higher basis. I received $3.61 against July futures on the remaining 54% of my ’18 crop I still had unpriced.

Why sell futures now?

There were several reasons.

  • I was concerned with how much corn prices had fallen already.
  • It was apparent to the market there was too much U.S. and global corn supply.
  • I’m only 10% sold for my 2019 corn and have no 2020 sales.
  • The risk of African swine fever appearing in the U.S. is always present.
  • There is unknown trade risk with China or even if NAFTA 2.0 gets signed.
  • On 4/23/19 forecasts indicated that most of the Corn Belt would have a 15-day window of good weather to plant.

So, in order to minimize my risk if the market doesn’t go higher, I sold. I hope this sale was the wrong decision, because that means I’ll have higher prices to sell my ’19 and ’20 corn. Currently, ’19 and ’20 prices aren’t at profitable levels.

What’s your final ’18 futures price?

When I combine my previous futures sales on the 46% of my crop that I have rolled to the July contract to collect market carry, and the options premium I’ve been collecting to this point, my final 2018 futures average price is $4.01 against July futures.

What about basis?

These trades did not have basis set on them. Since farmers weren’t selling when price levels dropped and because many were going to go to the field to plant, I thought there was a good chance for better basis. Today’s basis levels in my area are better than on 4/23, so I’m pleased with this decision so far.

Hindsight is always 20/20

I sold my remaining 2017 crop last August at $3.60. In hindsight, had I sold all of my remaining 2018 crop on the same day, I could have rolled those sales to this July and collected 40 cents of market carry. In hindsight, that would have been the better decision than waiting for a rally that ultimately never came. Still, while less ideal than collecting market carry, I did manage to pick up some extra premium selling calls and straddles on my unpriced corn over the past few months, which has been a consolation prize to help with my over all average price.

It’s hard to know yet if selling futures at these levels was the right decision. But, with what I know today, including having 90% of my ’19 crop unpriced, I’m comfortable with my risk management decision. It was time to move on and focus on next year.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

 

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