Grain Marketing Education, News & Strategies

Rolling HTA Contracts A client came up short on bushels to fill a July HTA contract for June delivery. The merchandiser suggested the client roll the portion of the undelivered bushels from July to November and deliver the bushels this fall. Our client agreed. He was surprised to learn his new November HTA price was higher than his July HTA. He asked how that could happen? The gain or loss on the roll from July to November has nothing to do with the price of the July HTA, w

This is a continuation of articles about the use of put options on commodity futures as a primary marketing tool to lock-in a minimum price or as a price “enhancer” of forward contracts or HTA contracts. Here in August, we have been discussing the process to maximize the income from the sale of a previously purchased put option. Since put options increase in value as the futures price declines, the first objective to maximize put income is to sell the put when the underlying

This a continuation of weekly articles about the use of put options on commodity futures as a primary marketing tool to lock-in a minimum price or as a price “enhancer” of forward contracts or HTA contracts. This article discusses the process to maximize the income from the sale of a put option. Since put options increase in value as the futures contract price declines, the first objective to maximize put income is to sell the put when the underlying futures contract price is

This article continues the discussion of how to use put options to make more profit through better marketing. Previous articles were educational of what are commodity options, how their values change in relation to the under lying futures contract, how put options can be used as the primary grain marketing tool or as a secondary marketing tool to add value to a HTA or forward contract. This week, we shift to the process of how to liquidate the put option position at optimum v

Tidbits Iran's Foreign Ministry issued a statement early yesterday morning officially confirming that no Iranian nuclear commitments and uranium handover exist or will exist in any draft agreement with the U.S., calling all reports that claim otherwise a "pure lie," making further talks pointless due to the U.S. insistence on this issue. The statement declares they are not signing any agreement with the U.S.; no one can claim we are close to reaching an agreement. Iran sepa

In this series of put lessons, we have four example farmers using different combinations of marketing tools to price their 2022 wheat: Dan contracted 5,000 bushels of wheat at $11.00 on a HTA and bought the $9 and $10 puts for 29¢ each. Joe contracted 5,000 bushels of wheat at $11.00 on a HTA and bought the $10 and $11 puts for 59¢ each. Don did not sell the futures or HTA, but bought a $9 put for 29¢ and then, when the futures gained a dollar, he bought a $10 put for 29¢. Ju

CBOT September 2022 wheat was up 45½¢ the week ending July 8th. Since the futures price was up, the puts with strike prices within a few dollars of the futures price decreased in value. Why? The higher the futures price moves, the less value a put has because a put gives its owner the right to sell something and if the price of that something increases, the value of selling it at fixed strike price diminishes. For example, on July 1st, September wheat settled at $8.46. The $9

Last week’s comments compared put option value changes with the price change of the underlying futures contract over a four-week period. The obvious conclusion was a futures hedge position would make or lose money faster than an option, but an option would never require a farmer to make a margin call. We recommend the HTA or Forward contract as the primary pricing tool and the puts as a secondary marketing tool to add value to the HTA. The week ending last, Friday (July 1st),

Very few people understand the relationship between the price change of a futures contract and the resulting price change of its options. For the past ten weeks, we explained how the daily price change of the 2022 September CBOT wheat futures contract impacted the value of its $9.00 and $10.00 put options. Now that we have explained the option vocabulary, the concept of options on futures contracts and a detailed day by day explanation of price action, now we will accelerate

Use Puts with HTA of Forward Contract to Increase Income On Aril 27th, 2022, September 2022 wheat settled at $10.89¾, down 2¾¢. The $10 September put settled at 49½¢, up 2 5/8¢. With the price change in the both futures and the put option at 2+¢, one would think the delta was near 1, which does happen when an option is very deep in-the-money. But the $10 put is not in-the-money at all; at today’s close, the $10 put was 89¾¢ out-of-the-money with a delta of .32, as you can see

How to Calculate Time Value of an Option The last put discussion ended with the question, “Was the $11 September wheat put out-of-the-money or in-the-money on the close of business Monday, April 25th with September wheat at $10.71¼?” To determine if the $11 put was in-the-money or out-of-the-money, you ask yourself: If that put option is exercised (exchanged for futures position), would the resulting futures position have a profit or a loss? A put with a strike price of $11.0

What is Time Value of an Option? This is the eighth essay discussing how to use put options to enhance your grain marketing was written after the close Monday, April 25, 2022. For the second day in a row, September 2022 CBOT wheat settled 2 cents lower today, at $10.71¼. Also, for the second day in a row, the September $10 and $9 puts lost value. The $10 put lost 5 cents and the $9 put lost 1 3/8 cents. As you should already know, puts are supposed to increase in value w

Use Puts to Lock-in a Floor Price or to Enhance the HTA Price? This seventh essay discussing how to use options to enhance your grain marketing was written Saturday, April 23, 2022. When the futures market opens Sunday evening, you can spend 30 cents a bushel for the right to lock-in a HTA price for your corn at $6.40 on December futures. December corn futures settled at $7.24 yesterday. If a corn farmer buys corn puts to lock in a floor price for his corn, does he want thos

On April 21st, 2022, September 2022 CBOT wheat futures settled 20 cents lower at $10.75¼. The $10 September wheat put option premium should have increased 6½ cents (delta times 20 cents). However, it increased about half that much. See the price chart below. The $9 September put premium should have increased by a little more than 3½ cents (delta times 20 cents), but it lost a quarter cent! Clearly, the option traders are bullish wheat and many traders realized that the big

When Does A Put Option Have No Potential Value? Lesson 4 option lesson ended with the question, if September wheat went to $25 in June, when would the September $10 put options have no value? Was it when the $10 put become worthless? Meaning the option could not be sold because no one would pay even a fraction of a cent for it? No. Was it when the wheat futures hit $25? No. No matter how high futures price goes, all put options will be “alive” until the end the lasty trading

September CBOT wheat settled at $11.05 on 19 April 2022, down 18¼ cents. The previous day, that wheat futures price was up 22¼ cents, so the premiums of the puts were down on 18 April 2022. The lower futures price increased the value of all puts on the 19 April 2002. A put option gives the buyer the right to sell futures at a set futures price, aka the strike price. As the futures price moves lower, every put option increases in value. The September 2022 $10 put gained $237.

Tidbits Brazilian soybeans: The Ministry of Agriculture and Livestock (MAPA) of Brazil has relaxed the issuance of Phytosanitary Certificates and resumed accepting surveyor samples. However, MAPA added a series of procedures and conditions: A Vigiagro (Brazilian federal health) inspector will personally accompany 1 out of every 10 vessels delivering soybeans to China. The inspector will personally collect the sample. The MAPA memo does not specify how or where the inspector w

This is the third installment of a series of educational explanations about put options. Even though most of you do not grow wheat, you can enhance your marketing profits by learning how put options work and what they can do for you. Now is the time to expand your understanding of marketing tools before the 2026 growing season for corn and beans. In January 2022, we had clients with July 2022 HTA wheat contracts a little above $8. Because of Russia’s invasion of Ukraine on 24

Tidbits U.S. and Chinese trade officials will meet in Paris tomorrow and Monday to lay the groundwork for the summit between President Trump and China’s President Xi Jinping. Bloomberg reports topics of discussion include tariffs, fentanyl, Taiwan, and soybean purchases. Crude oil: Saudi Arabia is flanked by the Red Sea on the west and the Persian Gulf on the east, north of Strait of Hormuz. Satellites that track ship transponders show a massive number of vessels are now he

Written 22 April 2022 In lesson 1, I wrote about clients who bought September wheat puts with September wheat futures right at $11.00. People were paying 60¢ per bushel for the right to sell September wheat futures at $10.00 and 20¢ for the right to sell September wheat at $9.00. Why would anybody pay so much money for the right to sell September wheat $1 and $2 below the current price? Why not just sell the September wheat futures at $11.00 and not spend $2,943.75 for the ri