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| Not sure if I agree with buying calls or a call spread against unsold corn. The spread wont gain that much if prices go back to $4.00, but if a weather situation does not develop the producer will have another 11-17 cents per bushel expense wrapped up in the crop. Best bullish strategy while CYA on downside would be to but December puts on unsold production and then sell the physical when you reach your price target. The puts cover you incase you are wrong and we sell off. Volatility is as cheap today for 2010 Dec puts as it was back in June of 2005 for Dec 05 corn puts, so if we have a full blown 5 alarm rally, yes you will loose a % on the puts, but not that much compared to what you gain on the unpriced corn. If we dont and sell off to sub $3.00 levels, depending upon your yield and insurance program there may be an indemnity and also a gain on the puts. If prices rally and there is not an insurance indemnity I can live with that.
I do agree 100% if I am heavily sold that the cheap vol. provides a great way to re-own the crop at these prices. When you could sell corn at $4.50 CZ10 you could not buy a $4.00/$5.00 spread at these levels. In that regard it makes alot of sense since the downside is protected with a higher sale price. | |
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Have we seen the lows?
