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Corn Market Analysis Paper

Decent Essays

For the purposes of this report, I analyzed the July corn futures market from a long position in contrast to my short position in the cash market. I took out one contract with a size of 5000 bushels of corn. I tracked this market since January 16th and collected futures and cash market prices throughout that whole period. In addition, I also analyzed hedging with futures and hedging futures with options dating back to February 21st. This report shall cover all aspects of this analysis including a compare and contrast section on each of the net prices from each hedging option.
To begin with, I analyzed buying a futures contract on February 21st to offset my risk associated with just the cash market. With this analysis, I maintained a margin …show more content…

My cash market, and its values, are based on Key Cooperative’s Story City, Iowa location. When I started this futures hedge, on February 21st, the most currently recorded cash price was 328. Fast forward roughly two months to April 14th, the cash price was 321. This gives me a net buying price of seven cents. Oddly enough, this was my best option in comparison to my two futures options which I shall explain a bit later. I believe this drop in prices is due mainly to the fact that we still have surplus of corn in the area and that there hasn’t been enough planting done in the local area to know if the USDA predictions will hold true in the local area. That is, that there will be less corn acres planted from a year ago to help with the current corn surplus. Being short in the cash market, means that I want to market to go down. This is because I have a cattle operation that I am constantly buying corn for. If I were to buy 5000 bushels of corn, which is what my futures contract was for, I would have had a net gain of 350 dollars compared to the February 21st cash price. This 350 dollar gain would have saved me money on my feed costs which in return I would have gotten back in my net profit when I sold the …show more content…

On February 21st, I bought a call option at 3.90 for a premium of .19125 cents. After following this market up until April 14th, when I closed this market, my net buying price would have been 3.30125 dollars per bushel. This price is nearly ten cents over the buying price in the cash market and roughly five cents over the net buying price in just a futures hedge. This net buying price is obviously because the strike price was more than the futures price was at the end of the hedge so I choose to not exercise this option. Had I chosen a strike price that was lower than the current futures value, then I could have exercised this option and potentially made money. Looking back, I should have purchased an option lower than 3.80 as I would of potentially made money with my option. However, at the time I wasn’t sure as to what I was doing and thus made a poor decision on my strike price. I suppose I can chalk that up to a lesson well

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