"Roger, what is the best method to protect from downward grain prices for my entire estimated production? Yet not get myself in a situation where I might have to deliver bushels that I do not grow if we do not have a normal production year?"
This is exactly the discussion you need to have with your buyers of new crop corn, beans, and wheat grain merchandisers. Talk to all of them:
As you know, the high futures price is usually before the size of the crop is known and I want to have a shot at catching a price near the top on 100% of my expected production.
I am looking for a merchandiser who will allow me to engage in a HTA contract for 100% of my expected production before I know what my production will actually be.
You can make that possible if you will let me contract on a HTA 100% of my expected production. If I come-up short on bushels, let me roll the delivery of those bushels to the next crop year. I will take the risk on the spread from one crop year to the next. I fully realize the market may be inverted. That is at my risk, not yours.
One of the reasons I and most farmers do not sell enough of their production at a very profitable price is because farmers want to have more grain to sell if the price continues higher. Eventually, no matter how high the price goes, the price will peak, then fall like a rock and all us farmers still have a lot of unpriced bushels.
Therefore, I am also seeking a merchandiser who will buy put options for me and attach them to my HTA, just like you do call options now. I will only buy puts if the market firms after I price the HTA so I can make the money on the way down I did not make on the way up. I will never exercise a put; I will either have you sell the puts or I will let them expire worthless.
If I buy corn puts at strike prices 30¢ apart and bean puts at strike prices 50¢ apart, my market plan will capture the top of the market without any stress on me or you.
Will you buy corn puts at 25¢ and bean puts at 50¢ a bushel for me and attach them to the HTA delivery contract?
If so, what is the fee for HTA, to roll to the next crop year and to purchase puts?
If you had done the above in 2022, here is how it would have worked-out: Sold 100% of your expected 2022 corn production at $7.50 on a December 2022 HTA on May 13th as we recommended. And then you come up short bushels? No problem, grow in 2023 and deliver. Yes, you would have had to roll at an inverse to Dec 2023 and lost 57¢ on the roll. Terrible loss! Your merchandiser will tell you the potential inverse is why he will not let you roll one crop year to the next crop year. But if you had rolled on November 28th, 2022, your Dec 2022 $7.50 HTA would become a Dec $6.93 HTA. Yes, a terrible loss! How much 2023 corn do you have sold at $6.93? By the way, Dec 2023 corn is $5.92. After you sell corn at $7.50 and then, if December corn goes to $8.49 like it did in 2012, you buy a $7.50 put option and make more than a buck as the futures price falls out of bed. The "fall" low on Dec 2022 corn was $5.52. What would the right to sell Dec corn at $7.50 be worth when Dec corn was at $5.52 on July 22nd? Yep, more than $2 a bushel. So, you don't need to worry about coming up short bushels and you don't need to worry about missing the top price. The only excuse you have to not implement this plan is you are not comfortable with it and that is why we have an additional level of service, called Full Service. This is just one example of the kind of things our full service guys could walk you through to see what your merchandiser will do for you and then put together a market plan to enable you to make more profit through better marketing… a lot more profit! You will be surprised what some of your merchandisers will do for you if you just ask. Honestly, there is no better market plan than the one described above. Roger has recommended it since 1990. Give Lance a call or shoot him a text at 563 880 5526 to see if he thinks he can show how to make a lot more profit through better marketing!