All of these decisions are directly impacting prices to you. According to the May USDA Supply and Demand Report, new crop corn carryout was projected at a record 3.3 billion bushel carryout, while beans were a more modest 400 million bushel carryout. While this bean carryout is drastically down from the last several years, it indicates adequate supply for the next year. Corn and soybean futures are at historic lows, and, while this brings high values to world importers, the markets have been unable to bounce back due to the weight of the negative demand fundamentals. However, on the positive side, we have started to see demand increase again for Ethanol, packing plants are starting to return back to work, and the world is taking steps to get back to a new normal. The US farmer will persevere and your coop will come through these challenging times with you.
Managing price risk is the most challenging aspect of farming. FCS is equipped to help you manage that risk and is now offering Minimum Price Contracts. This is a great marketing tool given the circumstances of the current grain market. Certainly, downside price potential exists due to significant demand destruction, yet this tool protects that downside while leaving potential upside open.
HOW IT WORKS:
You sell new crop corn at $2.90 for fall delivery. FCS would buy an August $3.40 corn call for eight cents plus two cents commission for a total of a ten cent investment for your account. The underlying futures contract for August calls are September and are fifteen cents out of the money. Your floor would be locked in at $2.80, $2.90 cash less the ten cent call investment. If corn were to continue to work lower, you would be contracted at $2.80 with just the investment of ten cents foregone. If the market were to seasonally rally through the growing season, the $3.40 corn call would gain value and can be repriced at any time during market hours, thus enhancing your $2.80 floor.
Option volatility is very low and options have become very cheap, making this contract more attractive than usual. Using August cereal options with September futures as the underlying, the option would expire on July 24th, which is just enough time to capture a seasonal rally or if a weather problem becomes a factor. As the chart shows without a seasonal rally, December corn could put lows in during the August/September time period and at lower levels than today. The Minimum Price Contract protects this scenario and is considered cheap insurance for protecting your price risk.
We also continue to offer Free Price Later, text message updates, and farm pickup. These are all tools designed to help you manage your farm-stored risk. Our text message service allows you to see the marketing tools that we are offering as well as bid structure and receiving hours.
If you haven’t signed up yet, call your nearest location to do so. We feel this is an efficient way to communicate with you and provide up-to-date information on our offerings. Our farm pickup service has grown in the last several years. For many of our patrons, it doesn’t pay to own and operate a semi. FCS uses our trucks when available, or use trusted contract haulers that are fully vetted. This service brings value to you by offering at-cost freight rates. Let us handle the details in getting your grain to town by lining up the trucks for you.
FCS is here to help you navigate the challenges. Let us help you through these times with our market knowledge and services. We look forward to getting back to the new normal with you. Please give us a call to discuss our programs, especially the minimum price contract—it’s an old tool with new advantages!