CORN: After a devastating bear market this spring, December corn futures stabilized around the $3.30-$3.40 area. This area is about 2 ½ standard deviations below the statistical mean price in the Croptomize frame, which is a probability distribution of possible prices. Croptomize takes a statistical approach to understanding commodity prices, which helps take the emotion out of grain marketing decisions. At current prices, the Croptomize Farm does not have any corn sales on but has purchased put options to hedge against additional downside risk. We started with approximately 50% of corn production hedged with long puts and this week moved up to 75%. Implied volatility is low, making this type of coverage historically cheap. $2.97 is the low end of the Croptomize frame for CZ20, 4 standard deviations below the mean and representing a statistical probability of less than 1%. Still, we buy puts to protect against a rare outcome while we wait for a rally to make sales.
BEANS: Soybeans are faring better than corn, as SX scored 6-week highs last week poking above 880, about one standard deviation below the mean on the Croptomize frame of prices. The Croptomize Farm has sold 5 of 60 soybean contracts and is long 25 SX 880 puts. Thus, anticipated soybean production on the Croptomize Farm is 50% hedged overall with about 8% sold on futures.
WHEAT: WN0 continues to hover around the statistical mean price on the Croptomize Frame while KWN0 is trading roughly one standard deviation below its mean. The historical lag of data used to generate the pricing frames puts the KWN and WN mean prices both in the 500-510 area. MWU0 is the most undervalued of the new crop wheat contracts according to the statistical distribution, as the 2017 bull market is still relatively recent and weighted disproportionately in the data. The model is agnostic here but would likely begin to make sales above $5.50 in Minneapolis Sep futures.
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