|
Fort Collins, CO | Yes. We wrapped up with old-crop in the fall (maybe not precisely October as suggested above). We are a risk management firm, not a speculative firm, so we manage risk and leave trying to outguess the market to those who enjoy it. Our normal hedging-season starts in earnest in February as the spring price is setting. We usually come out of February with what we estimate to be a net market-neutral hedge for our clients. The net takes into account production, any protection we expect to get from crop insurance, forward contracts, feed needs, and finally, listed futures and options. By the end of February, we like to have total bushel exposure as close to zero as possible for the acres we manage while accounting for the uncertainty surrounding real-world production.
Based on that, one could argue that we were fully-sold by the end of February 2020. That's not entirely accurate either because we held a fair number of options in the hedge portfolios. Mainly to account for production uncertainty and to capitalize on any cheap implied volatility we saw. In either case, we were well-hedged at the lows and sold-out long before the highs. We are very clear that we do not believe we are better at guessing market direction than anyone else (or a coinflip, for that matter). I would argue that we excel at managing risk and have a strategy and the tools to execute that job exceptionally well. We are not a good fit for folks that want to time the market or speculate on prices.
I am under the impression that our clients think we did a good job too. None are leaving, and some are considering adding acreage for 2021 (though I will not know their final decisions for sure for another week or two). I do know this; when we were at $3.20/bushel on Dec corn futures and $8.31/bushel on Nov bean futures, none of my clients were concerned in the least. To my recollection, some even seemed mighty happy. I cannot say for sure what their thoughts are, but I guess they think the sleep they were getting from March to August was a fair price for the topside they might have gotten had they been naked. Of course, had they been naked, they might have been the ones capitulating and selling at those prices.
We are by no means perfect. I would love to share a place where we did not meet our standards this season and what we are doing to avoid the same mistake in the future. We did not get enough deferred sales or futures-spreads done when there was a lot of carry in the market. We did some, but not enough. This year (in fact, I finished modeling it Thursday in a 16-hour spreadsheet marathon), we are treating owned storage as an implied call option on carry. Doing so gives us the ability to have a functional math-based solution to how much production we should have hedged beyond December at any point. Of course, that will not guarantee we make those adjustments, just that we have a conversation with our clients about why or why not.
I hope that helps. Please let me know if you have any more questions. I also apologize that this response got to be so long. I am not sure I could have done a decent job with fewer words (even this feels a bit light). Anyway, have a great rest of your weekend, and thanks for the response.
Regards,
James
| |
|
Weekly Corn Market Update
