News & Publications

For grain that’s headed into bins in town, farmers have a clear edge in selling the cash bushel and using call options to retain ownership.

The cost of the call option as compared to the cost of storage drives the decision, said Jeremy Strubhar, senior broker at Advance Trading. Speaking on this week’s episode of Ag Marketing IQ In Depth, Strubhar defined the dollars and cents involved.

Using numbers based on a central Illinois elevator, Strubhar pencils in these numbers: a 20-cent minimum storage charge through January, an extra shrink penalty that adds roughly 6 cents, and about 2.25 cents per month in interest opportunity. He figures storing corn until March 1 will cost about 43 cents.

Conversely, March corn futures sat near $5 on Tuesday, and a $5 March call was around 21 cents — roughly half the storage tab.

Here’s what could happen:

• The market goes up. You bought a call. “We’re going to gain in the call” with far less money at risk.

• The market goes down. You didn’t buy a call. “I paid storage, and I’m out the expense of all those costs, plus I lose equity in the bushel.” In this example, those costs are 43 cents.

• The market goes down. You bought a call. “The max I can lose is what I paid.” In this example, that’s 21 cents.

Listen In