Goldman Sachs provided a fantastic opportunity for feed users (feedlots in particular) to protect themselves from potentially surging feed costs. They suggested traders sell corn as a hedge against deflating assets due to the Covid-19 fallout. The reasoning was the double dose of reduced demand from the ethanol industry and feed use.
That worked well in 2008 when corn was as high as $7.79/bu when it hit the fan but not so much at $3.50. It caused a temporary dip to $3.32/bu with prices rebounding slightly to $3.50.
Feed users should look at the wheat market to see what risks they could face. In the last six trading sessions, Chicago Wheat rallied over $.80/bu US. Livestock futures have recovered enough from the initial break to suggest reduced feed use should be unlikely. The reduced use for ethanol production could be more of a reality but we have already seen increased purchases from China that may offset that somewhat. They surprised the market with a .75 mmt (30 mil bu) purchase last week with more likely to come. Especially if they can’t buy DDG (dry distillers grain) from ethanol producers.
Given the uncertain times we are dealing with, buying cheap corn call options at the least may be worth considering. Especially with the potential for new crop production problems resulting from supply shortages and/or weather issues.
Just a thought...
That worked well in 2008 when corn was as high as $7.79/bu when it hit the fan but not so much at $3.50. It caused a temporary dip to $3.32/bu with prices rebounding slightly to $3.50.
Feed users should look at the wheat market to see what risks they could face. In the last six trading sessions, Chicago Wheat rallied over $.80/bu US. Livestock futures have recovered enough from the initial break to suggest reduced feed use should be unlikely. The reduced use for ethanol production could be more of a reality but we have already seen increased purchases from China that may offset that somewhat. They surprised the market with a .75 mmt (30 mil bu) purchase last week with more likely to come. Especially if they can’t buy DDG (dry distillers grain) from ethanol producers.
Given the uncertain times we are dealing with, buying cheap corn call options at the least may be worth considering. Especially with the potential for new crop production problems resulting from supply shortages and/or weather issues.
Just a thought...
Comment