Today’s Number: Hedging Around Ag News


The June 30 USDA grain stocks and planted acreage reports were bearish from a markets perspective. From a producers point of view, they downright hurt. Corn and soybean prices saw a big drop following the report that projected a 132 million bushel increase over trade estimates in corn stocks, and soybean acreage that increased 11 percent over 2013.

The July 11 World Agricultural Supply and Demand Estimantes (WASDE) didn’t help matters for producers. Ending stocks for soybeans were bumped up to one of the highest levels ever. We know now about the selloff in corn and soybeans as a result of the data. Since the June 30 report, grains prices have fallen almost 25 percent, while soybeans have dropped around 11 percent.

These are drops that will leave producers facing some difficult questions as we head into another WASDE report August 12.  Has the market priced in another increase in production estimates? Could the new crop estimates go even higher? Hedgers knew what the USDA reports could say, and what was the general weather outlook this year. It’s not enough to examine the price impact of the reports. More revealing is how farmers in 2014 are preparing for market moving news.

One of the main ways, as Doug Ashburn highlighted in a recent article for John Lothian News, is through short-dated new crop options. Since their launch in 2012, SDNCO’s have traded nearly 2.4 million contracts, with over 1 million of those traded this year.  Producers and other hedgers find them particularly useful during crop season. Lately, they’ve averaged 10,000 contracts per day. 500,000 SDNCOs were traded between July and September 2013, the period’ of growth and pollination before harvest.



SDNCOs are a shorter-term option so hedgers save in premium, but their underlying contract (Dec.) has a long maturity.

Leading up to the June 30 report, over 30,000 contracts were traded on consecutive days.  That gives you an idea of their utility. SDNCOs are designed for short-term, potentially market-moving events, like major crop reports. The acreage report shows evidence of what’s been planted this year (71,000 producers are surveyed by USDA), so producers see these short-dated contracts as a way to hedge their exposure heading into a report that’s expected to show the kind of numbers the June 30 report wound up showing.

As we approach another report and beyond that, the harvest season, producers will continue to want to have an affordable insurance policy against an abundant crop. Short-dated New Crop Options are helping them position themselves for that very real scenario.


Read More:

Top 5 Reasons to Watch Short-Dated New Crop Options

Video: Peace of Mind on the Farm


Steve Stasys is Director of Ag and Alternative Investment Products at CME Group.

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