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Home / Futures Blog / Turner’s Take – Hedge Ideas for Dec 2015 Corn

Turner’s Take – Hedge Ideas for Dec 2015 Corn

July 16, 2014 by Craig Turner

This is a sample entry from Craig Turner’s email newsletter, Turner’s Take, published on July 15, 2014.


I’ve been writing Turner’s Take since 2008 and in that time I’ve met and worked with a lot of farmers. I don’t write about hedging crops all the time, but when I notice something in the markets I like to put it out. For spec traders, talking about 2015-16 Corn (next year’s new crop is Dec 15 Corn), it might be a little too far out, but for hedgers this should be right in their wheel house.

I was talking with John Payne of This Week in Grain yesterday about 2015-16 acres and something quickly became apparent. If $3.75 corn brings us back to corn acreage levels of 10 years ago, we could see 2015-16 corn acres in the 80 million ranges again. Darrel Good of the University of Illinois had a great report the other day saying that the $2.00 corn of 2005-06 is the equivalent of $3.82 today. Click here to read How Burdensome Are Corn Supplies? The following year corn acres planted went from 81.8 to 78.3 million.

I think that if we stay at these price levels for much of the year, corn acres go down again to around 86 million planted. If trend line yields are around 165 then we still have plenty of corn and prices will be around $4.25 to $4.50 in my models. However, this is where it gets interesting. What if we have crop issues next year and the yield is only 155 on 86 million planted. In that case I can see the 2015-16 corn crop going to $6.25 based on my supply and demand models.

Turner’s Take Corn Supply & Demand Scenario for 86mm Acres & 155 Yield

tt-sd-table

So what does this mean for a corn farmer who wants to hedge (or a spec trader with a very long term outlook)? Consider this for farmers and revenue protection:

Most insurance and revenue protection products on the market today for farmers deal with minimum payouts and creating floors. The issue we saw a few years ago is what happens to the farmer whose crops are damaged or lost and they don’t have the cash grain to take advantage of summer weather rallies? It is great to have price protection from $4.00 on revenue insurance, but you miss out on the move to $6.00 if you don’t have the cash grain.

That is why we are looking at Dec 2015 Corn Call options. Dec 2015 Corn is trading at $4.19. A $5.00 call for Dec 2015 Corn is going for about 17 cents ($850). The $5.00/$6.00 Dec 15 corn call spread is about 10 cents ($500) for $1.00 in protection ($5000 per 5000 bushels). These options have 494 days until expiration.

If I was a farmer, and I wanted to have upside price protection in case my production is hurt in a year where acres and yields could potentially be much lower than they are this year, I would look at Dec 15 calls. The last time we went to $8.00 in corn, the biggest gripe I heard from farmers who had lost their crop was that revenue insurance only pays the bills. Farmers who lost their crops didn’t have anything in place to take advantage of $6.00, $7.00 and even $8.00 corn.

Hedge Idea #1: Buy the Dec 2015 Corn $5.00 Calls for 17 cents ($850 per 5000 bushels)

Hedge Idea #2: Buy the Dec 2015 Corn $5.00/$6.00 Call for 10 cents ($500 per 5000 bushels)

As for spec traders, I like this for traders who have an enormous amount of patience and have the funds where they hold a position for a year. For the hedger, this is a prudent business decision that protects them from losing yield in 2015-16 while being able to participate in higher prices if we have price rallies like we had a few years ago.

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THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

Filed Under: Turner's Take

About Craig Turner

Craig Turner is a Senior Broker at Daniels Trading, author of Turner’s Take newsletter, and a Contributing Editor for Grain Analyst. Craig is often quoted in the Wall Street Journal, Reuters, Dow Jones Newswire, Corn & Soybean Digest, and also makes appearances on SiriusXM – Rural Radio Channel 80 providing commentary for the Grain and Livestock markets. Craig has also been featured in FutureSource’s Fast Break series, Futures Magazine Online, and INO.com. Mr. Turner has a Bachelors from the Rensselaer Polytechnic Institute (RPI) where he graduated with honors and has worked at the NYSE and Goldman Sachs. While at Goldman, Craig earned his MBA in the NYU Stern executive program. Learn more about Craig Turner.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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