If you read our Weekly Summary and Recommendations, you know that we recommend pricing new crop soft red wheat when it trades $7.97.
Last evening, July wheat traded to $7.99.
The contract high was made two months ago on 24 November at $8.63. At that time, the seasonal trend was up, the technical and fundamental situations were bullish and we did not recommend pricing wheat.
The wheat seasonal trend has been down since January 15th. The only thing bullish about wheat is the potential war between Russia and Ukraine, which is why July wheat has rallied from 63 cents since the January 14th low.
Sell your new crop soft red wheat on a HTA contract now and set the basis three weeks before harvest begins in your area.
Historically, the firmest basis of the year is three weeks before harvest begins in your area.
From a marketing standpoint, do not be pricing hard red witner wheat. La Niña is going to be very hard on hard red winter wheat around the world.
If you read our Weekly Summary and Recommendations, you know that we recommend pricing old crop corn when March corn trades to $6.22. Yesterday’s high was $6.21½.
The high on 2021 December corn was $6.38 on May 7th. At the time, the seasonal trend was up, the technical and fundamental situation were bullish and we did not recommend pricing corn.
When the seasonal trend turned down the third week in June, December corn traded a high of $5.86¼ and low of $5.30½ that week.
On July 1st, December 2021 corn traded to $6.11½. It would be nearly six months before the corn futures traded above $6.11 again and that was on December 27th at $6.15½ and $6.17¾ the next day.
Four days later, March corn was 33 cents lower. Do you remember how you felt after the 33 cent loss?
Friday and yesterday have been the only days March corn traded higher than its December 28th high.
Do we think you should price your old crop corn at $6.22?
Yes.
Do we think that is the high?
No.
The seasonal trend is up, the fundamental and technical pictures are bullish, and we expect the old crop corn to exceed $7.00 this spring.
Why are we recommending you price old crop corn at $6.22?
Risk management.
Maybe a Black Swan event will occur. Maybe we are wrong in our $7 projection. It would not be the first time!
You need not take that risk because, even though you price your corn at $6.22 HTA, the door is still open to capture $7, $8 even $9 corn. So why risk it?
All you have to do is buy put options or short the futures when you think the top has been made and confirmed by the combination of seasonal, technical and fundamental factors.
When you buy a put option, you are buying the right to sell futures at certain price, but there is no obligation to sell futures at that price. Your financial risk is limited to what you paid for the option.
A likely scenario will be like last year when December corn peaked at $6.38. The cost of a $5.90 December put at that time will be 25 cents a bushel.
December 2021 corn traded to $4.97½ on September 10th last year.
On that day, a December 2021 $5.90 put could have been sold for $1.09. Take the cost of the put (25 cents) from the selling value of the put ($1.09) and the net put profit would be 74 cents.
Add 74 cents to your $6.22 HTA and suddenly your net HTA price is $6.96!
So, why take the risk of not selling at $6.22?
If you want to improve your marketing, you have to do things you never did before. That includes reducing your market risk and using the marketing tools to capture unexpected or unusual opportunities.
Many, many of you have already done that and are a lot better off because of it.
Many of you are still trying to catch the top and have done a pretty good job many years. But, honestly, your failure to manage your risk is scary stupid… unless you can easily sell corn for less than $4.00 and not miss a beat. That is fine and, by all means, go for it.
But if you are not that financially well off or, even if you are that financially well off, why take the risk?
Sometimes, entertainment is very expensive.
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