Why You Need A Marketing Plan That Includes Options
In recent weeks, we have seen soybean and soybean meal markets increase due to production issues in Argentina. If these concerns persist or worsen in the coming weeks, they will continue to pull the market.
It is important to observe everything. Last year, South America produced 180 mmt of soybeans. Current estimates for this year's crop are 217mm, according to the USDA. That's 37 mm or 1.3 billion bushels MORE than last year.
We should see significant harvest problems in Argentina to reduce the entire South American harvest. To date, all of South America could supply 1 billion bushels more soybeans than last year.
Of course, product estimates and market direction can change quickly.
Despite higher bean supply in South America, we saw January bean futures prices drop $1.00 from the October low. If you saved beans this fall, you have now been rewarded. Are you selling any of these trees? The dollar rally is important and you should consider rewarding the market. Call options allow you to step back and stay in the market. If you sold beans during harvest but bought call options, you are also rewarded with this bean rally. Look for opportunities to raise your calls and take money off the table.
The main driver for corn today is the lack of export demand. US corn exports are down nearly 500 million bushels from a year ago. This still paints a picture of a continued decline in total USDA corn exports until demand improves.
The classic saying “high prices cure high prices” comes to mind here. If you're holding corn this fall, we've seen futures fall 40 to 50 cents since mid-October. If the put options were still valid, the decline in futures probably isn't as bad as it looks. However, it shows the importance of protecting against bear markets. If you sell the whole package and buy the calls, your calls still have value, and if we time it, it's in your favor.
Again, the market continues to show us the value of using options in your marketing plan.
Now is the time to implement the marketing plan. Although we know that market direction can change quickly, we should take current estimates as a guide. Various private estimates put US corn ending stocks for the next marketing year at 1.8 to 1.9 trillion bushels. That would be a huge increase over last year.
If we see closing stocks rise to 1.8 or 1.9 trillion bushels, don't underestimate how much the market could fall. Can you undermine this market with higher entry costs? The answer is clearly no. It is very important and valuable for you to have a marketing plan that uses risk management options. Options can protect you from a bear market, but also help you take advantage of higher markets if we see things moving quickly.
Options have been a very valuable tool in recent years and will continue to be a valuable tool in 2023.
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