Gulke: Farmers Should Buy Corn and Bean PUTS

[bone]

http://www.agweb.com/article/gulke-time-to-put-a-floor-under-your-grain-prices--alison-rice/

Gulke: Time to Put a Floor Under Your Grain Prices

Jerry Gulke predicts swings of $1 for corn and $2 for soybeans in January, thanks to the USDA report.
When it comes to the upcoming Jan. 12 USDA report, Jerry Gulke wants farmers to get themselves ready now and purchase some puts.

“I think this is the place where you finally buy some kind of protection and put a floor under it,” says Gulke, president of the Gulke Group in Chicago and a farmer in Illinois. “We probably have an upside potential of $1 in corn and $2 in beans—up and down. You just don’t want to take a chance and think you have the lock on intelligence” or weather or acreage

Looking ahead, Gulke expects 2015 will be a little different for everyone involved in the grain markets, as producers, exporters, and end users figure out just how much grain they are going to grow, sell, and need in the year to come. “We’re at a crossroads,” he says. “So many of us have heard for almost 365 days—or at least the past six months—how bad things are, how bad things could be for the next three years and beyond, how agriculture is in trouble.”

 

[Greenie]

Any thoughts on this trade, bone?

 

[bone]

Any thoughts on this trade, bone?

My thought process as a spreader is a bit different. It's not my forte to call outright directional bets because I'm always thinking relative value between products. I have not looked at the grain options premiums - and I would imagine that the vega is already jacked up. From a spec perspective; I'm thinking a straddle might be a good play if there was still some vol meat left on the bone. If I was downright bearish, maybe a bear call or bear put spread with a summer month vertical strike package.

From a commercial hedging perspective, I definitely agree with Gulke. I took a quick look at the beans and corn, DDG, Ethanol swaps, crush, crack spreads, and CL last night and I would most definitely recommend that a producer lock in your prices right fucking now. Maybe not hedge the entire production but a hefty piece of it. Bird in the hand, because commodities as a whole are coming off and cheap fuel helps farmers as a whole in terms of production costs but might be nasty for corn producers and ethanol blenders.

 

[Greenie]

My thought process as a spreader is a bit different. It's not my forte to call outright directional bets because I'm always thinking relative value between products. I have not looked at the grain options premiums - and I would imagine that the vega is already jacked up. From a spec perspective; I'm thinking a straddle might be a good play if there was still some vol meat left on the bone. If I was downright bearish, maybe a bear call or bear put spread with a summer month vertical strike package.

From a commercial hedging perspective, I definitely agree with Gulke. I took a quick look at the beans and corn, DDG, Ethanol swaps, crush, crack spreads, and CL last night and I would most definitely recommend that a producer lock in your prices right fucking now. Maybe not hedge the entire production but a hefty piece of it. Bird in the hand, because commodities as a whole are coming off and cheap fuel helps farmers as a whole in terms of production costs but might be nasty for corn producers and ethanol blenders.

Thanks for the insight.