Selling calls

first_imgShare Facebook Twitter Google + LinkedIn Pinterest The markets didn’t move much this week. Harvest pressure continues to limit corn upside potential. Beans at first looked like they may take off as harvest slowed, but on Friday, Brazil’s currency fell against the dollar. This meant a price boost for Brazilian farmers who sold some beans, putting pressure on futures prices. The 30-day forecast for South America looks good for growing beans. The market continues to search for a reason to swing either way right now.Even though I’m hoping corn prices go up, I still think corn prices are going nowhere for a while. That’s why I sold more calls, so I can presumably collect some premium in the meantime while I wait for other opportunities down the road to sell the grain and/or more options. 3 – New Trades – Selling CallsOn 10/24/17 when Dec corn was near $3.50 I sold the following calls for 10% of my production each:Jan $3.60 call for 10 cents – expires Dec 22May $3.70 call for 19 cents – expires Apr 20July $3.80 call for 19 cents – expires June 22What does this mean?If corn is trading below the strike price (the price listed on each line) when these options expire I keep the premium and add it to another trade down the road.If corn is trading above the strike price (the price listed on each line) when these options expire I have to sell corn for the strike price PLUS the premium.Should corn rally above each of these prices I would receive an average price of $3.86 ($3.70 average + 16 cents of options premium). I’ll need to move some grain during these time periods to keep my stored grain in good condition so this won’t be the worst thing if it happens.While I don’t really want to sell for $3.86, it means prices rallied, which is a good thing because I can then sell more of my unpriced corn at higher levels. I’m actually more concerned if corn prices DON’T rally. Like many farmers, I still have a substantial amount of unpriced grain that needs higher prices. So, until a rally comes, I need to “manufacture” prices that get me to profitable levels, and in this case, if prices remain low I can add to a later trade. This helps me push closer to breakeven points and possibly to profitable levels. Why I dislike minimum price contractsRight now some farmers are selling grain and then BUYING the calls I just sold in the above trades. Their guaranteed average price on all of these contracts would be $3.54. That comes from the average cost of the three calls at 16 cents, which will then need to be subtracted from the average sale price of the three contract prices above or $3.70 to establish where their true minimum price starts. One benefit of this type of trade is unlimited upside potential, if the market rallies. But if the market doesn’t rally, like this previous year, the farmer is behind.If we compare my sold call trades above to the farmers buying those calls, the farmers buying calls would need corn to go higher than $4.02 to beat my $3.86 trade because they still need to recoup the 16 cent cost of buying the calls. Rebuttal 1I’m sure some will argue that the calls could still have some time value left if there was a rally to $4, meaning the calls would be worth more than the 16-cent average. While that is a possibility, last year’s futures struggled to keep the nearby futures price above $3.80 for any length of time, so I would argue $4 might be difficult this year. That argument also assumes that a farmer would sell the call before it expires when this time value is still in place. That is usually not something I see most farmers having the discipline to do. I know I would find it extremely hard to sell the call into a rally well before it expires. Rebuttal 2Farmers buying a minimum priced contract will protect their downside, while my downside is open. Looking at the numbers though, corn prices would have to stay below $3.38, which is the minimum price contract floor of $3.54 less the 16 cent call premium I will collect, for me to be in worst shape than the farmer buying the call as part of the minimum price contract. While this could happen, I don’t think $3.38 for a prolonged time period is all that likely, especially during the January to June time frame which is historically usually the higher priced months of the marketing year. Plus, I can still sell additional calls in the future as these expire to add more premium to these trades, should this scenario happen. Generally speaking, after running the numbers for the various market scenarios that could happen, or are likely to happen, there just aren’t a lot of advantages for me to sell grain and buy calls, and in most cases a farmer doing so will end up behind because those types of trades are often long shots. That being said, there are many different ways to look at the market. A lot of farmers want unlimited upside potential, especially with downside protection, but there is a cost to get that chance. It may mean selling at levels below today’s already disappointing prices. The market has been range-bound for over a year now and could be in one for another year, so I try to structure some of my trades to be most profitable knowing this. I don’t want to be chasing long shots. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at [email protected]last_img read more

Two Ohio wheat farmers leading the nation both near and far

first_imgShare Facebook Twitter Google + LinkedIn Pinterest By Joel PenhorwoodThough Ohio is not a top state for wheat production, the state continues to be a hotbed for national leaders in agriculture. A pair of farmers in Ohio have taken their wheat expertise to the national level this year as they each are currently serving as chairs of their national organizations.Doug Goyings of Paulding and Rachael Vonderhaar of Camden are chair people of the U.S. Wheat Associates and Wheat Foods Council, respectively. They by no means selected an easy year for organization leadership in these groups as a multitude of issues face the industry nationwide, along with unique seasonal challenges here at home.“I’m a fourth-generation farmer,” said Doug Goyings, chair of the U.S. Wheat Associates. “My great-great-grandpa, he came here in 1886 — actually the farmstead where my son lives now. I followed my grandfather’s, great-grandfather’s, and my father’s steps, and I’ve grown the farm considerably since then. We’re approximately 4,500 acres now. My son works with me full time thank goodness because when I’m away doing U.S. Wheat business, I have to have somebody to work. Between my wife and my son, they do an excellent job of keeping up things when I’m gone.”A busy schedule for meetings with U.S. Wheat has coincided with a busy planting schedule, resulting in several nights without sleep.“It’s been a challenge. We’ve ran multiple nights over the nights and no sleep,” he said. “It’s not a good thing for anybody to run those hours, but we had to get it done.”Goyings has been on the USW board since 2009 and is a past chairman of the USW Long-Range Planning Committee. As chairman, Goyings is responsible for a number of things, one of them serving as a representative of the U.S. Wheat Associates near and far.“We interact with a lot of our buyers from around the world and that’s our number one job really is interact with the buyers to make sure they understand how to use U.S. Wheat because we’re one of the most reliable and quality wheats in the world,” he said. “We try to strive and let our customers know that and then they’ll keep coming back and that’s a key thing. You have to have return business. A one-time deal is something you don’t want. You want something year after year.”Though it can be difficult while maintaining a thriving operation back home in Paulding County, the role is a once in a lifetime experience.“I do enjoy doing this. My Dad says he deprived me when I was little because he didn’t let me travel much. I enjoy traveling, and it’s been interesting traveling to the different airports of the world and interacting with people. The world has gotten a lot smaller since I started traveling because most people in the world will speak English and that makes it a lot easier for us to travel,” he said. “I just got back after being gone for almost a month in South Africa and that’s a whole different world there. Basically when it comes down to it, every place in the world has poor areas and every place in the world has excellent cities and downtown areas that are just gorgeous. Every place I’ve been, I’ve seen both sides of everything.”Goyings’ connection to the family farm has helped him connect with international customers around the world.“It’s been interesting. I’ve been traveling quite a bit and I was in Malaysia talking to the buyers over there and what they enjoy is the fact you come from a family farm. They really like to see the pictures of the family farm because it’s important to those buyers around the world,” he said. “It was the same way when I was down in Mexico and Chile, they just enjoy talking to a farmer.”His tenure comes at an interesting time for American grain relations internationally. Several trade deals are of top priority for U.S. Wheat.“A lot of it’s trade. We do have competition now. Years ago, we had Russia that was a grain importer and now they’re the number one exporter in the world. They are a huge competition against us now,” Goyings said. “We just don’t sell anything hardly Europe anymore. Egypt is the number one buyer in the world and we don’t ship anything to them. I think one cargo went in there last year because Russia is competition now.”Just as weather in the heartland is affecting things greatly, it also has a major impact on world dynamics.“This year, Australia is not our competition because they had a drought,” he said. “We kind of hear about all these problems around the world and we try to be there to help our customers know that we are available and we always have wheat.”Goyings’ experience abroad has revealed some prospects for U.S. farmers.“I think Asia is a tremendous opportunity. Southeast Asia, there is a tremendous growth rate there. We’re shipping more wheat into that region so we are very heavily involved in that area,” he said. “We just have to go where we can move it and southeast Asia is a big one.“A difficult one is Africa because Europe and Australia come into there. We continue to work on it and let them know how to use our wheat. We’ve got specialists in all these different countries to show them how to use our wheat, because wheat is a little bit different around the world and we’ve got some advantages of blending our wheat when we ship it out to what the customer wants.”As far as goals go, Goyings has a couple as chairperson that stand out.“I’d definitely like to get things settled with TPP and Japan or whatever we want to call it when we get out agreement there. That’s a big one and also this thing with China, we need to get that trade,” he said. “If we could start shipping wheat in there, it’ll raise all the grain prices if we can get an agreement with them.”Rachael Vonderhaar of Preble County is representing the nation’s wheat growers in her role as chair of the Wheat Foods Council.Those goals if accomplished would change prices around the world, including for producers and consumers here at home. That is the audience focused on by Rachael Vonderhaar of Camden, Ohio, recently named chair of the Wheat Foods Council.“I farm with my husband Alan, my son Adam, and my father-in-law Lynn,” she said. “We raise wheat, malting barley, corn and soybeans, plus a little bit of cattle and sheep.”Vonderhaar has been heavily involved in the Ohio Farm Bureau and other agricultural organizations in the past. It’s no different on the wheat side.“I’m in my second term with the Ohio Small Grains Checkoff and it’s been a great opportunity to explore leadership both within the state of Ohio and nationally. I represent the checkoff to the Wheat Foods Council, and I’ve done that for a few years now and this is my year to slide into Chair there,” she said. “I’m excited and look forward to what the opportunities are ahead and how I can promote wheat domestically across the country.”Different from the U.S. Wheat Council that Goyings is a part of, the Wheat Foods Council is focused on multiple aspects of the process from farm to dinner table.“The Wheat Foods Council is made up of the full supply chain with wheat from producer to elevator, miller, to baker. We’re all there having that conversation together about how we can share the quality wheat with the United States and our consumers and educate them on the types of wheat we have and each of the purposes that are utilized,” Vonderhaar said. “Here in Ohio, we grow soft red winter wheat, and I like to refer to it as the sweet wheat because it’s all the yummy stuff. Your cakes, your cookies, and your alcohols.”Vonderhaar said that last bit with a smile and a quick laugh, though it’s that fun connection that Vonderhaar said is essential to telling the story of wheat with today’s consumer.“The national side is a big place. It’s a big playground and understanding who all is in it is educational not only as a producer, but as a consumer,” she said. “I love to bake and so getting to talk to the millers and the bakers across the country and how that relates back to my personal use has been an amazing experience.”Telling that story as chair of the Wheat Foods Council is a big part of the job, Vonderhaar said, but figuring out exactly who to have that conversation with is another job in itself.“As I’ve worked with the Wheat Foods Council and we’ve done our research, we find that the majority of the public is getting nutritional information from their trainer. So for years, we’ve worked with registered dieticians about sharing the message about wheat and the value of it for health, but we’re realizing we need to talk to those trainers because that’s where most people are reaching out to,” she said. “Sharing the science and the facts and the importance of having grains in the diet just for function and endurance is knowledge that really needs to be shared with the general public.“With the Wheat Foods Council, we do support a triathlete, Michelle Tuttle, who’s also a registered dietician. It’s really neat to listen to her and the diet that she writes for herself. Then you can follow her on social media to understand how she gets her endurance from the grains that she eats.”That unique way of conversation for Vonderhaar has roots that are unique compared to most in agriculture. She did not come from a farm background, but her life experience has led her to her position today.“When I was younger, agriculture was nowhere in the plan I had before me, but I met a boy who stole my heart — he’ll tell you I met a man who won it — with that I was all in. He was a full-time farmer and when I said ‘I do,’ I stepped into it all. I’ve been blessed with an amazing life out on the farm, raising a family, participating in agriculture — but I had a good friend, Jane Marshall, at the county fair had a lunch with me and she said, ‘You know what, I think we have a lot in common and I’d like to invite you to an Ohio Agri Women meeting.’ From there I went to an American Agri Women’s meeting and I was pulled in. I just want to be part of having the conversation and translating the information from the farm to the consumer. How do we have that conversation? Because we all talk about food in a different way and so those of us that raise it and produce it, we use a lot of language that’s not common for the common consumer to understand. We’ve been really open our farm to host anyone that wants to take a look and talk about what we’re doing, but I think participating in those groups has really helped me understand the value of sharing that information and being open with it.”Whether it be far away or right down the road, both Vonderhaar and Goyings encourage farmers of all ages to get involved in having the conversation, both within the industry and outside of it, telling the story of agriculture at home and around the world.last_img read more