Reducing exposure on the downside and increasing ownership on the upside

Subject: reducing exposure on the downside and increasing ownership on the upside.


Many clients sold cash corn when basis was strong and replaced or wanted to replace. Futures margin requirements and risk of cash flow squeeze is the number one concern we all have. Additionally we all know that we have to preserve equity so we can take advantage of the opportunities that develop in any crisis. We all know it will end and markets will bottom. The unknown is how long will this last and what level of economic disturbances it causes. Returning to work in 3 weeks is a small drop in ethanol use versus a 3 month sabbatical.

Here is an idea for farmers who have on basis contracts or have sold cash and want to re-own either from 10 cents higher and up…or down at 300 in Dec futures. And some but not much risk in between.

We want to emphasis that every client is different and what we are communicating is that there are position structures you should be considering. Variances of this and size needs to be discussed with your representative. No one size fits all.


Another idea is to eliminate the ownership on the downside all together and determine a max upside gain.


Buy one Dec 360 call and sell 2 410 calls for 4 cents. In this case if the market goes down you have no margin and you only stand to lose 4 cents, if it goes up you are in ownership up to 410. At that point one of the 410 calls will offset the 360 call and the other 410 call could become a short hedge commitment. There would be margin on that 1 410 call as the market goes up.


Please stay in touch with your representative. There are and will be a lot of opportunities in the long term of this crisis. We are trying very hard to give you ideas on how to manage the short term in order to gain on the long term. Take your time, remain small in size. Communicate.


Bill Biedermann