Issue 29
May 2000
 

Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc. and the Minnesota Barley Growers Assocation.

Copyright
Prairie Grains Magazine
May 2000

Grain Market Gleanings

By Tracy Sayler

Put option good lower/higher price strategy

Want to protect yourself from lower prices (possible as we move closer to harvest) but be able to participate in higher prices (possible with weather problems this summer)? Then consider buying a put option, says Wayne Olson, Benson-Quinn/RML Trading, Grand Forks, ND.

Puts are an especially good tool in carry markets.   For wheat, consider a put for December 2000 delivery; March 2001 for corn; and November, 2000 for beans.  Disadvantage in buying a put: You pay an up-front premium, more when purchased well ahead of when the contract expires.

Carry leverages future price

When the deferred value of a futures price is higher than the nearby futures price, that's called a "carry."  It means there's a better return to storage.  When the deferred value of a futures price is lower than the nearby, that's called an "inverse."  Thus, a market expert might look at the "spread" (the difference between futures prices in different delivery months) and employ certain selling strategies to take advantage of the higher price or carry, for example, between May wheat futures of $3.20 and December wheat futures at $3.50.  A hedge-to-arrive or basis contract is often used in a carry strategy.  

If local basis higher, take advantage of it

Got grain left in the bins? Then sell it this spring, particularly if the basis (difference between your local grain price and the futures price) has strengthened in your area.  Use any price bumps before you're forced to sell to free up bin space later in the growing season—at possibly lower prices, says Sheldon Laib, Futech Commodity Services, Moorhead, MN. 

Not sure about what to do?

Then consult a grain marketing professional. For a list of grain market advisory services in the region, visit www. smallgrains.org/springwh/MGuide99/MGuide99.htm on the web.