Is a balanced marketing approach what you need in 2024?

What happened

It’s been another wild year of market action. Throughout 2023, we’ve survived weather scares, political unrest, wars, world economic factors, and USDA reports with all the anticipation that goes with them. And the markets are still moving.

Why this is important

The coming year will be another wild ride. It’s an election year, and that will simply add to the uncertainty of the markets. There’s no predicting what will happen — not successfully, anyway.

As the year ahead approaches, it is time to start thinking about marketing and how a balanced approach may be the way to go. A balanced approach is one in which you are prepared for the market to move in either direction, shifting risk and taking the guesswork out of trying to pick tops and bottoms with cash marketing only. This approach can also reduce emotional marketing decisions that often occur when volatility is high, especially when crop production may be affected by weather.

What can you do?

One way to develop a balanced approach is to cash contract a comfortable percentage of your expected production, and also set a floor with the use of put options on the remainder of your expected production. Call options can be purchased to offset forward contracts, providing the potential for upward price appreciation.

Purchasing call options for the upcoming crop can be a bit challenging when the market isn’t moving much, as is the current state of corn and soybeans for the 2024 futures contracts. Currently, there is no urgency, but having call options in place gives you the confidence and discipline to forward sell. Placing target sell points above the market or selling during a time window when the market may be at higher levels are the goals of forward selling. History suggests this is the time window when uncertainty is at its peak, often before the crop is planted. It can be challenging to sell (even though you know you should), especially in times of higher prices. The market is moving higher for a reason and being patient may pay dividends.

The last decade showed it takes very little time for prices to fall apart. A change in weather or a USDA report viewed as price-negative can send prices tumbling. One day, you may feel like you shouldn't have sold, and then the next you cannot sell fast enough. Therefore, selling in rallies, with call options to cover those sales, reduces the effort of trying to outguess where prices are headed. In addition, when prices rally, purchasing put options to establish a floor for the same reasons also makes sense. Usually, by the time you have enough information to make marketing decisions, it is too late, as the market has likely already made its move. Waiting to sell or establish a price floor can prove costly if nothing gets done.

A balanced approach can allow you to participate if the market heads lower or higher. More importantly, it keeps your emotions in check so you can make responsible sales. Have thorough conversations with your advisor as to when and how to implement such a strategy. Create a budget for your option purchases. In the long run, it may be much easier to manage the risk on options than on an entire crop, especially if the market is volatile and you find yourself in an elevated emotional state.

Editor's Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.