Introduction

Is It Time to Build a Fence?

The strategy has a modest net cost and limits downside risk, while offering more upside to a farmer's cash ownership. As an example, take a look at May options, which don't expire until April 23, , or roughly five months from now.


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Let's assume that the basis for one location is 10 cents under the May contact for spring delivery. If a farmer does this on his own, at a brokerage firm, he will be responsible to maintain the margin requirement, which could become substantial if corn prices trade significantly higher.

Where have you heard about fences?

Talk to your local co-op or cash grain firm, however, as many can offer the same fence strategy without putting you on the hook for margin. I am assuming a farmer only enters a portion of his unsold crop in the fence. Rather than speculate on where the market might go with an outright long cash position, this strategy protects much of the downside, while still allowing more than 40 cents upside, for minimal cost.

An Effective One Day Options Strategy

Granted, if the South American drought worsens and production in South America is threatened, and China does return to buy significant quantities of additional U. However, at this stage, that is mere speculation. If rains should come and China does not appear, or if COVID again accelerates to negatively impact demand, then the overweight speculative long in corn could lead to a sharp correction. This is simply a marketing idea, but if you are bullish to a certain extent -- and you understand the downside risk -- then this might be a strategy for you to consider on part of your recently harvested bushels.

Editor's Note: Comments above are for educational purposes and are not meant to be specific trade recommendations.

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