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During our Spring Grain Market Outlook conference, we talked about marketing strategies that growers can use to better mitigate volatility in crop markets. In this article I want to answer some of the questions you asked about options contracts and their practicality for growers.
Introduction to options
Options are contracts. They give the owner the right, but not the obligation, to buy or sell a specific asset e.g. wheat, at a pre-determined price, at or before a point in time. They can be purchased on any dated futures contracts on various exchanges. For example, options can be bought on the London Nov-21 feed wheat futures contract or the Paris May-21 milling wheat futures contract.
We have created a separate page which discusses the basics of options trading and definitions of the terminology used. This can be found here.
Marketing strategies with options
Options contracts can be used to supplement your existing marketing plan rather than replace it. Using options can provide returns even when stores are empty of physical grain, but it requires familiarity of potential future market direction.
Below are two examples of how a call and put option could supplement a marketing plan. (expand sections on webpage after following below links)
Example A: Selling physical grain tonnage at harvest (call option)
Example B: Selling physical tonnage forward throughout the season (put option)
In conclusion
This article gives a peek into how options can be used in marketing strategies. If you want to know more background information on options, click here or there is a multitude of information available online.
If you want to use options, it is vital to understand the system. This will help maximise returns and prevent losses. Also, keep up to date with the market for the underlying asset e.g. wheat, to help influence your thinking on future market direction.
Marketing plans are different for each farm business. There is not a ‘one size fits all’ strategy as everyone has different business margin requirements and risk appetites. The risk element is very present in the use of options, as it requires the market price to move in a specific direction to provide returns.
I will take an in-depth look at specific marketing strategies later this month. In the meantime, staying up to date with the latest cereal and oilseed news is vital to identify future price trends as we move towards next season.
https://ahdb.org.uk/news/options-contracts-a-viable-marketing-strategy-grain-market-daily
Join the 3.5K people who subscribe to our Grain Market Daily publication here - https://ahdb.org.uk/keeping-in-touch
Introduction to options
Options are contracts. They give the owner the right, but not the obligation, to buy or sell a specific asset e.g. wheat, at a pre-determined price, at or before a point in time. They can be purchased on any dated futures contracts on various exchanges. For example, options can be bought on the London Nov-21 feed wheat futures contract or the Paris May-21 milling wheat futures contract.
We have created a separate page which discusses the basics of options trading and definitions of the terminology used. This can be found here.
Marketing strategies with options
Options contracts can be used to supplement your existing marketing plan rather than replace it. Using options can provide returns even when stores are empty of physical grain, but it requires familiarity of potential future market direction.
Below are two examples of how a call and put option could supplement a marketing plan. (expand sections on webpage after following below links)
Example A: Selling physical grain tonnage at harvest (call option)
Example B: Selling physical tonnage forward throughout the season (put option)
In conclusion
This article gives a peek into how options can be used in marketing strategies. If you want to know more background information on options, click here or there is a multitude of information available online.
If you want to use options, it is vital to understand the system. This will help maximise returns and prevent losses. Also, keep up to date with the market for the underlying asset e.g. wheat, to help influence your thinking on future market direction.
Marketing plans are different for each farm business. There is not a ‘one size fits all’ strategy as everyone has different business margin requirements and risk appetites. The risk element is very present in the use of options, as it requires the market price to move in a specific direction to provide returns.
I will take an in-depth look at specific marketing strategies later this month. In the meantime, staying up to date with the latest cereal and oilseed news is vital to identify future price trends as we move towards next season.
https://ahdb.org.uk/news/options-contracts-a-viable-marketing-strategy-grain-market-daily
Join the 3.5K people who subscribe to our Grain Market Daily publication here - https://ahdb.org.uk/keeping-in-touch