Consider options in your marketing plan

As farmers now plan for the year ahead, many continue to face some of the challenges of last year, which offered more of a rollercoaster ride for growers. Tim Andriesen, general manager of agricultural commodities at CME Group, says his biggest lesson of 2021 is that price risk isn’t going away anytime soon.

“If tight fundamentals aren’t enough, uncertainty was again an important theme last year, with factors such as the pandemic and severe supply chain disruptions contributing to high volatility, particularly during key periods of the growing season. In fact, the CME Group’s CVOL index, which measures the volatility of all our agricultural commodities, peaked at 46% in June, driven mainly by corn. These levels were among the highest since 2008. As our clients navigated this volatility, we saw a record number of producers using the flexibility of options products to mitigate price risk, secure margins and manage cash flow. Treasury. Trading activity across our agricultural options complex reached a record average daily volume of 274,000 contracts last year. A record amount of this volume came in the form of non-standard options – like our short-term and weekly new crop products. A record number of market participants are seeing the value in how these options fit into their marketing plan.

For those who may be less familiar with the options, it explains a bit more about how they fit into a marketing plan.

“Especially in volatile markets like these, which also come with high input costs, it’s important to lock in profits when you can. Options allow producers to set a price floor for their grain, with a higher cost known in advance, while still being able to participate if prices rise, however premium costs tend to be higher when prices are extremely volatile, which is when you need it the most To solve this problem, we have introduced short-term new crop options. They expire earlier than traditional options, which means that because there is less time value, premiums are lower than options. standard. Using them, you can, for example, buy protection only until June if you are worried that the crop will be planted. If in June you are still worried, you could buy an option to cover pollination. Overall, they provide the grower with much more flexibility to manage risk during specific windows of the growing season.

Andriesen says the producers have a lot in mind when it comes to the 2022 plan.

“We would expect many growers to be nervous about high input costs and uncertainty, but also optimistic that the market will give them an opportunity to lock in profits. I think they are all fully aware of the importance of an effective market plan in 2022. At CME, we want to continue to provide them with the tools they need to manage risk as effectively as possible and understand how options products might perform. fit into their market plan, as well as where they can find good sources of information.”

It adds plenty of ways to learn more about what’s right for your marketing plan.

“I always say that I think it’s really important for producers to have a good broker or a good marketing consultant, so if they don’t have one, find one,” Andriesen says. “Secondly, we have a lot of great tools on our website about all of our products. I would particularly advise them to check out our educational materials on short-term new crop options.”

Learn more about short term new crop options online at CMEGroup.com/SDNC.