A.M. Bickley Comments
5-18-2012 Hedge Play
For a hedge play in corn there are two charts want to present: One chart is our estimated economic returns in corn and the other is a chart showing price change in the September's corn futures price. The chart on economic returns reflect producers who rent irrigated ground or who have recently bought irrigated ground that can produced 200 bushels. If you fall into that category our suggestion is to price some bushels or at least be ready to pull the trigger when a rally occurs. With profit margins so slim, don't suggest using any future's options because the risk is not worth the reward.
The second chart is merely for logical though about where corn prices could go. In no way is it a prediction on where corn prices are going to be, but rather a tool to assess risk with bushels that are un-priced. The chart shows the price history of September futures from August 2011 to May 15, 2012. The chart also includes a 25 day moving average, a 50 day moving average, and a Bollinger Band which is a tool used to measure variability. I drew a line starting from the high made on August 30, 2011 to the low set on May 11, 2012. In that time frame, the September future price lost $2.10 over 78 trading days for a rate of loss of 1.18 cents per day. Now, supposed the low established on May 11, 2012 is the bottom and from here the market reverse course and continued in a bull market. If the theoretical bull market continued at a rate of incline double to that of the rate of decline from the previous bear market, the September corn board will be back above $6.00 in the middle of July ($6.11 on July 14). This is a theoretical scenario and only using it to give some logical thinking about the time needed to get corn back up to over $6.00. Could corn fall to the five dollars before harvest? That's a logical assumption to make to. So is holding out for better prices worth the risk of corn falling to $5.00 or lower? In our opinion from a risk management standpoint, the risk is not worth the rewards.
