Corn: A Game Changer . . . .

[farmaholic]

Hard to take advantage of strong commodity markets if you don't have much to sell.

Can options ever make up for dismal yields? Are there enough "plays" to be taken advantage of?

Something is telling me it isn't that lucrative, or more people would be doing it.

The Cos/exchanges writing the options proobably don't lose??????

Anyone?

[Guest]

other than oats($3.65 today) , i hope these aren't strong commodity prices?

[farming101]

July 410 corn calls after failing to fill the gap on June 7.

Buy on open June 10 for 10.25 cents, settled June 12 at 21 cents. Last quote 28 cents.

[furrowtickler]

July 410 corn calls after failing to fill the gap on June 7.

Buy on open June 10 for 10.25 cents, settled June 12 at 21 cents. Last quote 28 cents.

Need money to play .
My kids and wife take care of that here lol

[farmaholic]

July 410 corn calls after failing to fill the gap on June 7.

Buy on open June 10 for 10.25 cents, settled June 12 at 21 cents. Last quote 28 cents.

Appreciate the post.

How many contracts would you cover in a real life situation.

Are They sold in 5000 bushel contracts?

To me this is speculating too.

A more wordy explanation, not assuming the reader knows even the most basic details, is good.

I suppose the internet is full of explanations.

[farmaholic]

Volatility is the traders friend?

[TechAnalyst]

Hard to take advantage of strong commodity markets if you don't have much to sell.

Can options ever make up for dismal yields? Are there enough "plays" to be taken advantage of?

Something is telling me it isn't that lucrative, or more people would be doing it.

The Cos/exchanges writing the options proobably don't lose??????

Anyone?

Options are ideally suited for a situation like this. A call option gives you the right but not the obligation to own a certain quantity of a commodity at a set price (the strike price). In the case of corn, it is 5,000bu per option. By purchasing calls as another form of insurance against a crop failure before it develops, you are securing the right to have product to sell even if you can't produce it. Keep in mind, it has to be a large enough of a production issue to impact the price. For a local failure, they won't likely help.

As an example, on May 13th, you could have purchased December $5.00/bu corn calls for $.02/bu. For the right to own 200,000bu of corn at $5, it would have cost you $4,000 US plus commissions. That was because the trade was certain the crop would get planted, it always does, and it's always a bumper. Dec futures traded around $3.70 bu that day. Now that it is clear they have a very serious problem, Dec corn is at $4.55 and the $5.00 call is worth $.23 or $46,000 USD. If the eventual crop is small enough a 2012 supply situation develops, a return to those prices with a high of almost $8.25 would be possible.

Ideally, if you want to buy call options to protect against a crop failure, you would want to use the commodity that is primarily grown in your area. Normally the proper strategy would be to buy canola or Minneapolis wheat calls for the prairies or oat calls for southern Manitoba farmers but right now politics have messed up the picture for our commodities so much corn or soybean options would likely have been best.

As far as quantity, you would likely want to consider your expected production. If you normally produce about 100,000 bu of various crops on a 2,000 ac farm, that may be a good starting point. It really is like any insurance policy were personal attitudes towards risk management is the most important.

Hope that helps...

[Agvocate]

Key thing to remember in that strategy is that vol has changed significantly since may. Vol is basically the premium the option writer needs to write the option based on how likely it is that prices move to that level. Sideways markets, low vol, big volume big daily moves = high vol.

Higher the vol, the higher the cost of the option.

[TechAnalyst]

In short, the time to implement the strategy is when it looks like you won't need it, not once it's hitting the fan.

[TechAnalyst]

I don't want to be a nuisance but I would like to highlight what looks to be a very important development on the corn chart.

Prices gapped higher following the US Memorial Day long weekend when it became clear that the planting delays could be serious. That simply means the lowest price traded following the long weekend was above the highest price traded in the previous week. Gaps are usually filled as buyers wait for prices to fall to the previous weeks high at a minimum. If buying is aggressive enough, the gap will remain unfilled. That is exactly what has happened and the gap remains to this day, in fact it occurred again over the following weekend.

This could be critical as it would be viewed as a breakaway gap, a sign of very aggressive buying. If found on the weekly charts, it usually signals a significant move ahead.

It is also important because the traders that don't know the difference between a cow and a combine do know that this demands attention. Once both the fundamental and technical traders start to look for prices to do the same thing, the likelihood should increase.

Just a thought...