Brian Basting: Lock in A Floor, Maintain Flexibility
January 18, 2021
The rare occurrence of a downtrend in supply and an uptrend in demand put the grain markets on an upward trend to close out 2020. For 2021, be prepared for a good old-fashioned acreage battle. In response, create a disciplined marketing game plan. We asked eight analysts to provide their best estimates on price direction and market strategies you can employ in 2021. Here is one of eight.
Brian Basting, Advance Trading
Closely monitor weather trends in Brazil and Argentina. Any shortfall in corn or soybean production could boost U.S. exports further and support prices. Also, watch for increases in U.S. soybean and corn acreage in 2021. A larger-than-expected increase combined with trend-line yields could send prices lower.
This year, we’ll have the unknown impact of COVID-19. Any disruption in trade related to lockdowns could pressure the market, while a successful vaccine implementation could offer price support.
Try locking in a floor for projected 2021 production but also maintain marketing flexibility. That’s because the market could offer a pricing opportunity well before crops are planted, or at least prior to harvest. All too often we see producers not willing to take a small profit, yet they take large losses.
As for tools, options establish a floor for anticipated (or realized) production, but also provide the opportunity to participate in rallies. An advantage of buying a put option is if a crop production problem surfaces, bushels are not committed to be delivered. It is prudent to also add cash sales to your portfolio. Risk is known when using long options in terms of the amount of loss, but not the likelihood of loss.
Disclaimer: This material has been prepared by a sales or trading employee or agent of these analysts and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions and agree that you are not, and will not, rely solely on this communication in making trading decisions. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that these analysts believe are reliable. Such information is not guaranteed to be accurate or complete, and it should not be relied upon as such. Trading advice reflects good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice provided will result in profitable trades.