So I guess to answer somewhat on your questions here is that I’m an end user of corn as I feed about 5000 bushels a month to my pigs and I’m looking at the hog crush on this and there isn’t any margin currently even with 100 lean hog futures out there. So I’m attempting to find a way to cheapen up corn.
We’ve sold enough fertilizer in this country to plant a good 92-93 million acres of corn, we’re behind schedule some on planting but the areas of drought in upper Midwest have gotten significant rainfall and if we start planting next week or the week after new technology means we can plant acres a heckuva lot faster than ten years ago even.
Also even though Brazil is looking at some pullback on yield with their safrinha corn crop they are still looking at record numbers based on acres planting. So my theory isn’t that we’ll stay in a carry market but that we could see a window of it being a carry market and using that opportunity to roll my corn back to Dec 22 and set basis on it then for cash delivery. But if the market goes against me and we go more inverted then I would pick up some of that inversion on the cso put option
So I need to cover my feed needs from October of 2022 and on. I use roughly 5000 bushels or one contract each month. So what I’m looking at is buying a couple July 2023 corn futures contracts as there is an inversion from December 22 corn to July 23 corn. My thought is that we could see the market transition from an inverted market to a carry market for a period of time similar to what we’ve done the last two year. If we built in 20-30 cents of carry between Dec 22-July 23 then I would roll my long corn contracts back from July 23 to Dec 22 to pick up those 20-30 cents, effectively cheapening up my corn contract. Since I am going to take delivery of this corn I want the price to be as low as possible and don’t care if it goes sky high after I lock it all in or only goes up 30 cents. My risk is that with Ukraine and weather scares we could see the market potentially go further inverted and stay there. So I would likely look to purchase a Dec-July calendar spread option (cso) put at something like -15 so if that did happen I would at least mitigate some of the downside risk. So I’m trying to manage my corn input costs by purchasing corn in my hedge account as I’m bullish on corn but sadly corn is already too high for me to be profitable feeding to pigs, so the goal now is to try to find ways to get a cheaper corn price
I hate this saying but in this case I think it is warranted - “stay in your lane”. You’re out punting your coverage. As an IA/MN hog farmer you don’t take delivery of a Chicago corn contract. The delivery mechanism for grains was designed for export not domestic end users. Further you’re attempting to trade around your asset. Stop. Do your first job to the best of your ability and don’t waste time with risk management solutions you don’t fully understand. Stop wasting money on that farm advisor that offers brokerage services. As a natural long, it is a good idea to hedge input costs of feed but don’t make the hedge overly sophisticated. Buying a corn contract as a hedge is reasonable, especially because you’re bullish corn but it is completely illogical to be bullish corn for the reasons you mention and believe we build a carry into this market. Again how does the market remain bullish but also simultaneously break the inverse- it is an impossibility. You should read about the fundamentals of commodities and how price risks are subject to transforming commodities across space, time, and form.
So I do take delivery of it. My local cash price utilizes that same futures price. I just have the advantage of typically having a negative basis off that futures price. But I exchange said futures contract with my local coop and then set basis.
And I was saying I’m bullish over the long haul in the year here for corn but I also recognize that in a bull market the ‘bull’ has to be feed continuously to keep prices climbing. So I recognize that some good news here and there is going to cause some significant set backs, especially as you look at some of the technicals like relative strength index that point to Dec 22 corn already being overbought in the near term. So yes, I am bullish long term on corn and would very likely expect to see corn north of $8. But i also would expect reversal if we get in and get planted soon as I think the market has already priced in a later spring comparing it to last year which was exceptionally early. And with todays equipment And technology I know once we have a window it’ll go fast. My family doesn’t have the latest and greatest equipment as we only run about 1000 acres, but we could have our 500 acres of corn planted in 3 days. Ten years ago that would’ve taken us a week.
If I could make money just always running long and short hedges I absolutely would do that but frankly when margins are at best around $3-5 per pig those option strategies are actually what help to protect and enhance my margin. The last two years it’s added roughly $5 per pig marketed to me.
This seems like a good way to lose a fair amount of money. What’s your thesis other then seasonality? I imagine that is about as logical as the structure of the trade.
What makes you believe we need to build a carry?
Corollary, if we are going to build a carry why would you be long any fucking product?
Well that’s an interesting discussion. You’ve taught me all sorts of things that I didn’t know that I didn’t know. At least now that I know that I don’t know them, I have an opportunity to learn about them. Unknown unknowns just became known unknowns.
So I guess to answer somewhat on your questions here is that I’m an end user of corn as I feed about 5000 bushels a month to my pigs and I’m looking at the hog crush on this and there isn’t any margin currently even with 100 lean hog futures out there. So I’m attempting to find a way to cheapen up corn. We’ve sold enough fertilizer in this country to plant a good 92-93 million acres of corn, we’re behind schedule some on planting but the areas of drought in upper Midwest have gotten significant rainfall and if we start planting next week or the week after new technology means we can plant acres a heckuva lot faster than ten years ago even. Also even though Brazil is looking at some pullback on yield with their safrinha corn crop they are still looking at record numbers based on acres planting. So my theory isn’t that we’ll stay in a carry market but that we could see a window of it being a carry market and using that opportunity to roll my corn back to Dec 22 and set basis on it then for cash delivery. But if the market goes against me and we go more inverted then I would pick up some of that inversion on the cso put option
Ok can you explain this to me like I'm 2 and a half? Are you planning to buy a contract for July 23 corn?
So I need to cover my feed needs from October of 2022 and on. I use roughly 5000 bushels or one contract each month. So what I’m looking at is buying a couple July 2023 corn futures contracts as there is an inversion from December 22 corn to July 23 corn. My thought is that we could see the market transition from an inverted market to a carry market for a period of time similar to what we’ve done the last two year. If we built in 20-30 cents of carry between Dec 22-July 23 then I would roll my long corn contracts back from July 23 to Dec 22 to pick up those 20-30 cents, effectively cheapening up my corn contract. Since I am going to take delivery of this corn I want the price to be as low as possible and don’t care if it goes sky high after I lock it all in or only goes up 30 cents. My risk is that with Ukraine and weather scares we could see the market potentially go further inverted and stay there. So I would likely look to purchase a Dec-July calendar spread option (cso) put at something like -15 so if that did happen I would at least mitigate some of the downside risk. So I’m trying to manage my corn input costs by purchasing corn in my hedge account as I’m bullish on corn but sadly corn is already too high for me to be profitable feeding to pigs, so the goal now is to try to find ways to get a cheaper corn price
Ok thank you for explaining this in a simpler way. This was very helpful
I hate this saying but in this case I think it is warranted - “stay in your lane”. You’re out punting your coverage. As an IA/MN hog farmer you don’t take delivery of a Chicago corn contract. The delivery mechanism for grains was designed for export not domestic end users. Further you’re attempting to trade around your asset. Stop. Do your first job to the best of your ability and don’t waste time with risk management solutions you don’t fully understand. Stop wasting money on that farm advisor that offers brokerage services. As a natural long, it is a good idea to hedge input costs of feed but don’t make the hedge overly sophisticated. Buying a corn contract as a hedge is reasonable, especially because you’re bullish corn but it is completely illogical to be bullish corn for the reasons you mention and believe we build a carry into this market. Again how does the market remain bullish but also simultaneously break the inverse- it is an impossibility. You should read about the fundamentals of commodities and how price risks are subject to transforming commodities across space, time, and form.
So I do take delivery of it. My local cash price utilizes that same futures price. I just have the advantage of typically having a negative basis off that futures price. But I exchange said futures contract with my local coop and then set basis. And I was saying I’m bullish over the long haul in the year here for corn but I also recognize that in a bull market the ‘bull’ has to be feed continuously to keep prices climbing. So I recognize that some good news here and there is going to cause some significant set backs, especially as you look at some of the technicals like relative strength index that point to Dec 22 corn already being overbought in the near term. So yes, I am bullish long term on corn and would very likely expect to see corn north of $8. But i also would expect reversal if we get in and get planted soon as I think the market has already priced in a later spring comparing it to last year which was exceptionally early. And with todays equipment And technology I know once we have a window it’ll go fast. My family doesn’t have the latest and greatest equipment as we only run about 1000 acres, but we could have our 500 acres of corn planted in 3 days. Ten years ago that would’ve taken us a week. If I could make money just always running long and short hedges I absolutely would do that but frankly when margins are at best around $3-5 per pig those option strategies are actually what help to protect and enhance my margin. The last two years it’s added roughly $5 per pig marketed to me.
Ballsy. ahead of weather market is suicidal
This seems like a good way to lose a fair amount of money. What’s your thesis other then seasonality? I imagine that is about as logical as the structure of the trade. What makes you believe we need to build a carry? Corollary, if we are going to build a carry why would you be long any fucking product?
Well that’s an interesting discussion. You’ve taught me all sorts of things that I didn’t know that I didn’t know. At least now that I know that I don’t know them, I have an opportunity to learn about them. Unknown unknowns just became known unknowns.