Grain Marketing

Adequate moisture during the critical plant pollination stage is what many market prognosticators are talking about now. I don’t think I can predict the weather, but I can certainly read the below map and understand how prices will gyrate as it does, or does not, rain in Iowa and Illinois. These two states typically account for 35% of the U.S. corn harvest – and – their corn is starting to pollinate now.

Remember there are several methods available to us for pricing grains. My tendency is to price early and often in small batches using cash forward contracts. On top of this I am fairly frugal. So, the thought of covering some of my later sales (when prices had been moderating) with CALL options bothers me some. I do understand the purpose of a CALL, but I don’t like to spend the money. However, if I have a harvest and the mid west doesn’t – price levels for the 2012 crop harvest may be dizzying. I am pushing my pencil pretty hard to get a better feel for the balance between the cost of a CALL option and the minimum price I can accept. The formula I am using:

forward contract price − call premium − brokerage fee = minimum price