I just got a headache. What was I doing? I was doing research on funds and ETFs. Why? Because there are so many questions about funds and risk vs reward and what the funds are doing in a market. Many think that it is the funds that drive the market, not the fundamentals. When the fundamentals say prices should be higher, but they are lower, it must be the funds that are throwing the wrench into things. So, yes, when I start digging into funds and get some statistics (like the Teucrium Corn Fund with 57.84mm in assets) or looking at the assets of the top 25 commodity ETF’s totaling $17,650,000,000, it is no wonder that markets, not only corn and beans, but all markets are bouncing all over the place and figuring it our gives headaches.
Unfortunately for you grain farmers, your lively hood depends on this chaos. Maybe it is time to look at a better way to mitigate your chaos. Rather than falling into the trap of figuring out where a market is going and figuring out how much you should sell, let’s look at it this way, specifically for for corn:
Acres planted: 1,000. Estimated Yield per Acre: 180. Current Dec 24 futures: $4.00 w local basis of $.50. Given these numbers, we can estimate your revenue to be $630,000 off the combine today. This is what the market is giving you today.
If prices were to rise $1.00 between now and November, this $630,000 would turn into $810,000. Yippie, if it does! But what if it goes the other direction. It goes down $1.00. The $630,000 turns into $450,000. You willing to live with that? If you say yes, I am, then turn off your daily text messages on what the market is doing because it does not matter. You have made your decision by doing nothing. You live with what the market will give you, good or bad. If you say you can live with the revenue decline, but are still nervous, then maybe it is time to look at alternative strategies. Would a strategy that builds a revenue floor of $590,625 yet provides a gain of $780,075 should prices rise $1.00 be ok? Not the greatest of the best world, but ok. Would this work for you?
This is what the Heartland Revenue Management approach is all about. Our analytics provides you with information that eases the strain of market uncertainty. Each client is different, and the analytics are adapted to your needs.
Is it time to talk with a 30 year hedging pro about funds and risk vs reward rather than a market story teller?
Until next time.