5/11/2021

With the recent run up in wheat prices, we wanted to put some alternative marketing strategies in front of producers to help you protect your downside risk. The September KC futures (chart below) has moved from it’s lows on 4/6 at $5.66 all the way up to $7.45 on 5/7 and is currently sitting just shy of $7.15. With such a sharp run up on the board, and harvest just around the corner a minimum price contract is a great way to lock in a floor on those bushels. To use Hemingford harvest delivery as an example, current cash price is $6.70 and you can buy a December KC $7.20 call for $0.68, leaving you a minimum cash price of $6.02 (6.70 – 0.68).

If we were to ask you what your biggest risk is right now between the board going up or the board going down, you would answer the board going down. This contract helps protect you from the futures market trading back to the levels we have seen the last few years, but it also gives you the ability to participate in the market if the futures continue to rally to higher prices.

Another common question/concern is what happens if I can’t produce enough bushels to cover my contract? The risk in that scenario is that the cash price is higher at the time you have to underfill your contract than it was at the time the contract was written. The long call option helps protect you in that scenario as well. That call will gain value as the board goes higher, helping offset the cost of underfilling our contract in that scenario.

Click this link for a few scenarios to help walk you through how this contract would look given different futures levels at the expiration of that December $7.20 call on 11/26/21.

Give Kyle, Colby, or Colt in the Grain Department a call at 308-487-3325 to discuss this strategy further and help implement a good marketing plan.