Presented by Dave Fogel, Risk Management Advisor 800-664-2321 - - PowerPoint PPT Presentation

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Presented by Dave Fogel, Risk Management Advisor 800-664-2321 - - PowerPoint PPT Presentation

Jul 22, 2023 471 likes •1.1k views

25 th Annual Joint Conference NC Cotton Producers, Corn, Small Grain & Soybean Associations January 15-17, 2014 Presented by Dave Fogel, Risk Management Advisor 800-664-2321 www.advance-trading.com Who we are. Company started in 1979

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800-664-2321 www.advance-trading.com

Presented by Dave Fogel, Risk Management Advisor

25th Annual Joint Conference

NC Cotton Producers, Corn, Small Grain & Soybean Associations

January 15-17, 2014

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Who we are.

  • Company started in 1979 and was incorporated in 1982.
  • Producer marketing division began in 1984.
  • 94 total employees
  • 16 commercial brokers, 27 employees branches, 29 non-

employee branches, and 7 other AP’s

  • Customer base spanning the U.S.- most all states that grains

are produced, processed, or fed

  • 33 total branches offices- employee and non-employee.
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Who we are.

  • International customer base in Canada, Switzerland, British

Virgin Islands, Mexico, Brazil, and Egypt, with other business relationships with Lebanon, Ukraine, and Tokyo.

  • Full-time economic staff.
  • Network of around 3,500 customers
  • Largest IB (Introducing Broker) outside of Chicago, IL
  • Currently have a relationship with 4 different FCM’s (Futures

Commission Merchant) and are currently working on a fifth (before the end of the year)

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We have no way to predict if we will see prices like we did from 2008-2012

  • r if 2013-14 is more likely-

.

However, we can predict if the latter is the case, we need to be well educated on defending

  • ur balance sheet

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Defend your balance sheet!

The time to use risk management is when your balance sheet is good. If you don’t defend, you risk putting yourself in a position where others make decisions for you.

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What does it take to defend your balance sheet?

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  • 1. Education on marketing tools
  • 2. Belief in a simple philosophy
  • 3. A plan/execution
  • 4. Common Sense Risk Management
  • 5. The knowledge to combine:

crop insurance + marketing + cash sales

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Simplicity offers the best solutions to everyday challenges, fortunately, the same is true for managing price risk

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Each marketing year is unique. Managing price requires a consistent approach each year. Follow a philosophy you can trust and will work in all market environments.

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Any strategy/risk management plan should be simple enough in that it can be explained and understood in a typical conversation…

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Many spent the past summer challenging USDA Reports

In the meantime what did price do?

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We have customers in Iowa and

  • Minnesota. I also drive through

there to visit customers. We understand the frustration of planted acres-not planted acres- prevent plant acres.

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There is nothing to be gained by disputing government/USDA numbers.

There is, however, much to be gained by:

  • learning
  • managing risk
  • being in control

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End Result on the USDA Debate: So far we missed price breaking from $6.70 on Mar. ‘14 Corn futures and $14.09 ¾ on Mar. ‘14 Soybean Futures ….even though you were right

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What makes you believe there are advisors, brokers or any Ag Industry person has this ability?

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Once you accept and believe price is not predictable, you then become an effective marketer.

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Until then, you are just winging it, taking chances, risks-speculating

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3 Keys to Managing Risk

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Education on

  • 1. Marketing Tools
  • 2. Crop Insurance
  • 3. Cash Markets/Sales
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You have heard, even before me about the importance of having a marketing plan. However, in order to build a solid plan you must understand all the marketing tools and alternatives.

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A plan should work in all market environments-in all directions. However, how can you build a plan until you understand all tools available?

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Futures

Pros and Cons

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Selling Options

Pros and Cons

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Cash Forward Sales

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Options fit Risk Management for Farmers

Those who like to say options do not work either have limited experience with them or did not manage them properly.

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Do you want to risk a long premium, fixed amount or give away hard earned equity?

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If an option position turns out positive, that is very good. If an option position turn out negative, that is perfectly okay. Better, in fact.

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We understand the logic of not selling cash bushels if the weather is not cooperating. Where it gets difficult is the scenario where the weather improves but now price is significantly lower.

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Learn how to incorporate the purchase of a put into your marketing plan.

This provides price protection

without causing you to have concern. Should I sell? But what if it doesn’t rain?

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Managing your cash bushels is one of the 3 keys to successfully managing risk

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In order to gain from higher prices most tend to do this by owning unsold cash bushels There are times this can be done in a much better, more economical way.

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Purchased Call Options

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An inverse is an inverse- needs to be sold

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Short Dated Options

You need to understand how they work

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New Crop Short Dated Options Currently, these options are listed for 2014 and that is the 3rd crop year these have been available. These are a rival for OTC contracts. These options allow you to manage new crop prices while using a lesser amount of time vs. the traditional new crop option. They are currently available for corn, soybeans, and wheat.

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Short Dated vs. Traditional Options

Find a way to educate yourself on how they work and if there is a fit for you business.

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As a grower, its okay to root for higher prices as long as downside risk is managed There is risk of getting too bearish.

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Be wary of bearish strategies: Accumulators Short calls

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Knockouts Double ups

Do you fully understand what these mean?

  • Until you know-

Stay Away!

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Accumulators-OTCs

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Options = 100% Price Managed

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Change happens… And it happens fast.

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Change happens fast! On July 7, 2013, December 2013 corn futures traded at $6.65 On November 19, 2013, December corn futures dropped to $4.11

How did you defend this? This is a drop of $2.54/bu in just 4 months.

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Change happens fast! On July 14, 2013, January 2014 bean futures traded at $14.09 On November 19, 2013, January bean futures dropped to $12.68

How did you defend this? This is a drop of $1.41/bu in just 4 months.

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Pendulum swings from 1 extreme to another- never parks in the “comfort zone”

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The more things change… The more they stay the same.

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At a recent meeting, a question was asked whether the market understands we are at or near break-even prices.

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Well...

The market may or may not be aware, but it is not a factor if you expect it to increase price. Does the market react because the end user side/ethanol plants, livestock, feeders were under pressure with high grain prices?

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Cost of production has been increasing with higher prices

  • Now that prices are lower, are your costs

coming down equally to price?

  • With prices near break-even levels for

some, doesn’t this mean we need a plan to manage price? Margin?

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How do we manage new crop when below the cost of production? Does the market have to trade above breakeven?

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Looking ahead to 2014

  • What is your plan?
  • When will you lock in your inputs?
  • Are you planning on taking crop insurance?
  • What type of policy are you looking for?
  • Are there add-on product for your crop insurance

policy you are interested in?

  • Are you taking a weather policy?

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Are we heading to an environment where price is not above breakeven all year?

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Livestock producers have learned to manage margins. Now the grain guys may have to grind out a profit- may not be profitable all year

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Are you long 2 crops? What's the plan?

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It Really Is This Simple!

Stored Bushels risk of lower prices to loan. Buy puts OR sell bushels with purchase of calls. Sold bushels risk of higher prices buy calls.

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Crop insurance is one of the 3 keys to managing risk

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Crop insurance is a very important part of your plan Adding Crop Insurance to a well designed marketing plan is a great way to manage risk

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Crop Insurance Has Many Benefits But It Is Not A Marketing Program

  • What do you plan to do prior to when

the crop insurance average is set?

  • What do you plan to do when/if prices

rise above average price level?

  • Lastly, what will you do after 2nd

averaging period ends? Typically harvest/post harvest time period?

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If today was 3/1/14, we would be looking at a Feb. average price for crop insurance of $4.65 on Corn and $11.65 on Soybeans.

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For many, marketing has turned into procrastinating due to adverse weather Is this a sustainable plan year after year?

Summer 2012 Summer 2012 Spring 2013 55

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ISSN: 1948

  • 3007

Released July 15, 2013, by the National Agricultural Statistics Service (NASS), Agricultural Statistics Board, United States Department of Agriculture (USDA).

Cotton Squaring – Selected States

[These 15 States planted 99% of the 2012 cotton acreage] State Week ending 2008

  • 2012

Average July 14, 2012 July 7, 2013 July 14, 2013 (percent) (percent) (percent) (percent) Alabama ................................ ............. Arizona ................................ ............... Arkansas ................................ ............ California ................................ ............ Georgia ................................ .............. Kansas ................................ ............... Louisiana ................................ ............ Mississippi ................................ .......... Missouri ................................ .............. North Carolina ................................ .... Oklahoma ................................ ........... South Carolina ................................ .... Tennessee ................................ .......... Texas ................................ ................. Virginia ................................ ............... 15 States ................................ ............ 90 89 100 83 90 77 97 97 88 86 50 77 83 74 86 80 82 86 97 95 51 16 88 73 34 63 21 33 39 41 60 51 90 88 99 96 68 50 97 83 62 73 23 42 52 65 80 69 75 81 97 80 80 68 96 94 83 90 53 72 84 68 76 75

Cotton Setting Bolls – Selected States

[These 15 States planted 99% of the 2012 cotton acreage] State Week ending 2008

  • 2012

Average July 14, 2012 July 7, 2013 July 14, 2013 (percent) (percent) (percent) (percent) Alabama ................................ ............. Arizona ................................ ............... Arkansas ................................ ............ California ................................ ............ Georgia ................................ .............. Kansas ................................ ............... Louisiana ................................ ............ Mississippi ................................ .......... Missouri ................................ .............. North Carolina ................................ .... Oklahoma ................................ ........... South Carolina ................................ .... Tennessee ................................ .......... Texas ................................ ................. Virginia ................................ ............... 15 States ................................ ............ 37 39 85 43 57 18 72 60 18 25 9 19 34 24 10 34 5 32 8 35 11

  • 15

6

  • 2

2 1

  • 11
  • 10

17 60 28 50 20 2 55 20 19 9 4 3 2 13

  • 17

29 41 57 36 40 5 70 50 27 38 10 21 23 21 19 29

  • Represents zero.

2 Crop Progress (July 2013) USDA, National Agricultural Statistics Service

Cotton Condition – Selected States: Week Ending July 14, 2013

[National crop conditions for selected States are weighted based on 2012 planted acreage] State Very poor Poor Fair Good Excellent (percent) (percent) (percent) (percent) (percent) Alabama ................................ Arizona ................................ .. Arkansas ................................ California ............................... Georgia ................................ .. Kansas ................................ ... Louisiana ............................... Mississippi ............................. Missouri ................................ . North Carolina ........................ Oklahoma .............................. South Carolina ....................... Tennessee ............................. Texas ................................ ..... Virginia ................................ ... 15 States ............................... Previous week ....................... Previous year .........................

  • 7
  • 1
  • 6

8 3 1 16

  • 10

9 5 5

  • 6
  • 6

6 1 6 5 11 37 6 7 23 3 16 15 13 29 9 16 10 31 51 29 40 31 35 33 26 24 35 23 32 32 37 65 47 44 5 48 34 60 45 60 42 20 61 50 23 63 32 34 37 1 44 27 85 15 9 10 8 4 6 2 4 18 3 11 10 10 8

  • Represents zero.

Corn Silking – Selected States

acreage] State Week ending 2008

  • 2012

Average July 14, 2012 July 7, 2013 July 14, 2013 (percent) (percent) (percent) (percent) Colorado ................................ ............ Illinois ................................ ................. Indiana ................................ ............... Iowa ................................ ................... Kansas ................................ ............... Kentucky ................................ ............ Michigan ................................ ............ Minnesota ................................ .......... Missouri ................................ ............. Nebraska ................................ ........... North Carolina ................................ .... North Dakota ................................ ...... Ohio ................................ ................... Pennsylvania ................................ ..... South Dakota ................................ ..... Tennessee ................................ ......... Texas ................................ ................. Wisconsin ................................ .......... 18 States ................................ ........... 18 91 76 70 70 75 39 72 86 67 97 38 63 50 34 96 82 32 67 3 8

  • 12

16 2

  • 15

1 88

  • 4

4

  • 60

67

  • 6

8 21 22 1 33 37 9 1 30 14 93 5 19 23 6 75 72 2 16 13 50 39 29 56 55 20 24 61 36 95 12 30 31 9 86 78 14 35

  • We have become

all or nothing on marketing

  • risk tolerance-

Is it ok to be in a win-lose position?

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At the end of the day price is determined by supply and demand.

So….if USDA is too high on acres or the crop isn't as good as implied, price will respond as it looks at demand. Final carryover.

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3 Keys to Long-Term Marketing Success 1.Marketing Education

  • Learn the pros and cons of each tool

2.Crop Insurance 3.Understand Cash Markets

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2013 and 2014 Marketing Patterns may need help from Mark Twain:

“ When you find yourself on the side of the majority, it is time to pause and reflect.”

  • Mark Twain

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You can always find someone to who will give you market info and marketing

  • ideas. Are they sound or
  • rigination-based?

Our Trusted Brokers at Advance Trading won’t tell you what to do. We like to teach. We bring you sound ideas. We illustrate just exactly what your risk may be.

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Want to stay informed on the latest market information? Follow me on Twitter @ATI_DaveFogel You can also reach me by email at Dfogel@advance-trading.com

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This data is provided for information purposes only and is not intended to be used for specific trading strategies without consulting Advance Trading, Inc. Because trading futures and options normally involves risk, determining the appropriateness of hedging with futures and options can only be made on a case-by-case basis. All information is based upon data that is believed to be

  • reliable. However, we cannot guarantee the accuracy or

completeness of the data

Disclaimer