Tuesday, June 21, 2011

How do I hedge my 2012 corn crop and come out with the best return?

How do I hedge my 2012 corn crop and come out with the best return?

Below is a look at a few charts that tell us how history says one is suppose to hedge the big bull markets; as always it doesn't mean it will be the same this time around.

The heart of the question is if a producer has a good idea and portion of his costs of raising his 2012 corn crop how does he go about marketing it.  Forget the method for starters; let's go right to the heart of the matter; where does one place his hedges.  Should he really sell 2012 at a discount to 2011 if the reason he is selling is he thinks prices will go down?  Probably not because softer prices usually go along with more supply thus creating a carry in the market or at least taking away part of the inverse that is presently out there.

Where would the old school say to hedge it at; on this I know I have learned via being a grain merchandiser one is simply suppose to place hedges where they belong or you might get burned and if you get burned too many times you will be sleeping on the street.

So there you have it; old school versus the bear market theory; bear market theory says place your hedges in the Dec 2011 crop while the old school says that might work most of the time but the one time it doesn't work.  OUCH!

Personal opinon is that ECON 101 will rule out thus causing increased supply with decreased demand therby creating a bear market sometime in the next 5-6 months therefor I place the hedges in the Dec 11 all day long until I see that we are going to have much supply come Oct-Nov.  My thinking that is we always see some sort of harvest pressure; I have never went a year not seeing grain piled some place or another during the winter and I don't think this will be any different.

Here are some charts that might help you make your decision.

Oh by the way if in 2008 you would have placed your 2009 sales in Dec 08 futures you could have hit over 8.60 a bushel for corn; while the high of that Dec 2009 contract was 7.00 ish.

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