Category: Hedging

12 Feb 2024


Corn has had a rough 6 months and continued lower with bearish sentiment and funds being short. The USDA report had higher Brazil corn production than the CONAB numbers by 10.25 MMT. The market has been looking for any good news to help put a floor in and that has not materialized. The one bright spot in exports is that we are ahead of pace to both Japan and Mexico for the year while China’s demand has been poor heading into the Lunar New Year. The USDA report pegged 23/24 US corn stocks at 2.172 billion bushels, close to the pre-report estimates.

Via Barchart

As bad as the news, or lack of news, for corn has been, the news for beans has been worse. In this week’s USDA report the US bean stocks came in at 30 million bushels higher as exports struggle. Brazil bean production came in above expectations as well with a 156 mmt production (trade estimate of 153.15mmt). With a quiet period occurring during Chinese Lunar New Year it is unlikely to see strong exports and weather is neutral to bearish in South America.

Via Barchart

Equity Markets

The equity markets continue to climb as the S&P 500 closed over 5,000 for the first time on Friday. The market has been pulled higher by the same stocks that have gotten it to this point in the magnificent 7 and AI stocks rallying. Analysts are debating whether the rally should broaden in 2024 or remain top heavy as it has started. The Fed will likely keep rates where they are until at least the summer.

Via Barchart

Other News

  • The bearish USDA report continued to weigh on the markets as South American production came in above expectations, still higher than many private estimates.
  • Thanks to Chip Flory and Davis Michaelson for having Jody Lawrence on their internationally known and critically acclaimed AgriTalk radio program last Friday. Here is the link.



Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].


29 Jan 2024



Can it be any more obvious? For many months, which are now turning into years, the marketplace has been perpetually short. Some by design and some by necessity. The market is always short. That had been a winning strategy. With a shift to tighter supply, pressure on the buy-side is coming into play today. Last week was a good example where an announcement of another mill closure set futures, not cash off. The industry adjusted by exiting futures positions, not buying cash. Where is the panic? The answer lies with the other obvious factor. As long as construction remains steady and mills produce, the industry can stay in this guarded mode. That is why the action last week was in the futures and not cash. The buy side will not go unless it is needed. Announcements won’t be a factor right after a buy round. They are a few weeks in.

The futures market has changed directions. Instead of bleeding the market to the downside, it will bleed the market to the upside. This is not fund-related or algo-driven. This is a simple cycle change. The potential for sharp upside moves is real. The ability to hold those gains is not so much.


The elephant in the room is the gap below the market. I looked for it to get filled, only to see higher highs. The volume is too low to show a direction here. It is easy to hold the market up. A pullback into the gap is not a reversal. The technicals are positive. Basis trades are still in play.


Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.


Brian Leonard

[email protected]


16 Jan 2024

USDA Final 2023 Yield and Stocks Overview

USDA Final 2023 Yield and Stocks


January 12, 2024

First Glance:


USDA Yield:   177.3 BPA (174.9 Estimate – 174.9 Nov)

Total Crop: 15.342 BBU (15.226 Estimate – 15.234 Nov)

Harvested Area:  86.513 MA (87.036 Estimate – 87.096 Nov)

23/24 US Ending Stocks: 2.162 BBU (2.111 Estimate – 2.131 Nov)

23/24 World Stocks: 325.2 MMT (312.9 Estimate – 315.2 Nov)

Brazil/ARG Crop: 182 MMT (180 Estimate – 184 Nov)


USDA Yield:   50.6 BPA (49.9 Estimate – 49.9 Nov)

Total Crop: 4.165 BBU (4.134 Estimate – 4.129 Nov)

Harvested Area:  82.356 (82.757 Estimate – 82.791 Nov)

23/24 US Ending Stocks:  280 MBU (245 Estimate – 245 Nov)

23/24 World Stocks: 114.6 MMT (111.9 Estimate – 114.2 Nov)

Brazil/ARG Crop: 212.0 MMT (204.9 Estimate – 209 Nov)


23/24 US Ending Stocks:  648 MBU (659 Estimate – 659 Nov)

Winter Wheat Seedings: 34.425 MA (35.786 Estimate – 36.699 LY)

23/24 World Stocks: 260.0 MMT (258.3 Estimate – 258.2 Nov)


The USDA found larger than expected totals in almost every category, increasing corn yield 2.4 bpa over the November estimate to 177.3 bpa. This is both a record yield and record total crop of 15.342 billion bushels. Bean yield was also raised .7 bpa to 50.6 and a total crop of 4.165 bbu. Both corn and bean harvested acres were slightly trimmed, the only bullish news in the report.

Higher yields were pushed through to higher ending stocks with US corn carryover raised to 2.162 bbu (+31 mbu from Nov) and 803 mbu above last year’s stocks. Beans had a similar fate with stocks set at 280 mbu, up 35 mbu from November but only 16 mbu above last year. Wheat stocks were slightly smaller than expected at 648 mbu but still up 78 mbu from 22/23.

Despite the rough start to Brazil’s growing season in their northern regions, Brazil’s bean and corn crops were not cut as much as expected. The weather has improved hurting the bullish narrative of a bad year for Brazil but the expanded acreage will also help offset any damage done earlier in the year.

There has not been any good news lately and prices reflect that. In June there was concern over the US crop with corn a $6.25 and beans at $14, now today has made new contract and multi-year lows in corn, soybeans and wheat.

08 Jan 2024

Leonard Lumber Report: The futures trade last week looked flat


On the surface, the futures trade last week looked flat. The net change for the week was up $2. In fact, the last seven sessions have seen closes within a $4 range. A digestion phase after the run-up? Underneath the surface, things are changing. We have shifted the fund shorts over to the industry. Wood is now hedged. We have also shifted some of the industry longs over to new fund longs. The makeup of the futures market today is friendly. It is not a signal to buy, but it could generate higher prices on its own.

The futures market is closed on Monday the 15th, so January expires on Friday. The current open interest is normal for five sessions to go. With the growing industry’s short number, we may see some upward pressure again. We could see a shift to expirations now having an upward bias.

As far as the cash market goes, it remains fluid. That has been the case for months now. It has the feel of the covid slowdown that never occurred. This time, we spent a year expecting a recession and higher unemployment. What we found was steady business.

With mills coming back online and wholesalers owning wood, it could be sloppy for a while. The funds are the key.

This recent sideways trade is nearing an end…….

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.


Brian Leonard

[email protected]


18 Dec 2023


Corn has been rage bound for the last two weeks with no catalysts in the market to move it much either direction. The weather in South America has improved slightly in areas that got off to a tough start but doesn’t seem to have made much a difference on the market. It is still a wait and see approach for the South American crop, nobody wants to jump to conclusions. Th Biden administration is supporting tax credits for ethanol-based sustainable aviation fuel, which would result in a major new demand source down the road. The markets will likely be muted in both volume and price movement as we head into the end of the year.

Via Barchart

Soybeans have bounced around the last couple of weeks with a steady stream of exports and the Argentinian peso devaluation. The latest crush report from NOPA recorded a record for the month and about 3 million bushels more than pre-report estimates. The demand for beans has been there and seems to be significant but with so much time still to go before South America’s crop is known. Estimates keep shrinking the Bazil crop, which the market shrugs off, making it a hard market to be overly bullish in when good news is not met with good market reactions.

Via Barchart

Equity Markets

The equity markets continued their run higher this week as the Fed kept rates steady and seem likely to begin cuts in 2024. The rest of the market has begun participating as the Magnificent 7 stocks had done most of the heavy lifting to this point. Analysts are still warry of a soft landing recession but for now the markets are moving higher in the short term.

Via Barchart

Other News

  • The Fed held rates steady this week with markets expecting them to start cutting in the first half of 2024.
  • Argentina devalued the peso by more than 50% to try and help the nation’s struggling economy.


Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].


11 Dec 2023



“The season of contentment.” Most have closed up shop for the rest of the year. There is minimal volume in either the futures or cash. The futures trade is a liquidation of all sides. The outlook is also fuzzy. As the daily traders look for a crack at the mills the long-term traders wonder if that was enough of a buy. In 2023, there have been three good buy rounds, each at a lower cash price and futures bounce. Does the trend continue? I will say this: most of the industry does not want lower cash prices. That tells me it could be more of the same, dragging the market lower until the next round.

It’s been over a year of complacency, confusion, and a content market. The data shows a loss of 20% from the retail sector side versus a drop in supply of roughly 20%. You can be more balanced. Historically, this industry doesn’t come out of that phase quietly. With less production, less Euro, and a construction needle that doesn’t move, the volatility will be on the upside. The futures market is quietly indicating that with the support we are seeing. It’s going to take more time.


The lower objectives of 518.50 and 510.50 are still in play. These are corrective objectives. If you look at the wedge pattern that formed in 2023, the bands are 568.80 and 495.30. Today, lower mill prices will not stimulate buying. With an RSI of 49.40%, those bands look a mile away.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.


Brian Leonard

[email protected]


01 Dec 2023


Corn has had a rough month as it continues its sideways to lower grind after briefly touching $5.20 in October for the March contract. While there has not been any major market news to direct the market a strong weekly export report this week was welcome to the market that had been bleeding lower. The last few days saw a nice reversal, seeing a 14-cent rally off this week’s lows. Basis has taken a nosedive in many areas of the country hinting that there may be more corn out there than initially expected. With harvest all but wrapped up for most of the country it will be worth keeping an eye on whether farmers store the corn and hope for better basis or get it off their books to pay back operating loans at the highest rates we have seen in years. Brazil’s weather remains about the same with beneficial rains expected over the next couple of weeks in the drier areas north and the south remains wet.

Via Barchart

Soybeans have fallen over the last couple of weeks but is in a sideways trade in the big picture. Exports were not as strong as corn but better than expected. Brazil’s weather is the main focus for beans right now as the north is drier than normal and the south is still wet. The bean demand from China is welcome, as always, but sustained demand and not just demand while Brazil is having logistic issues will be important. The amount of rain in Brazil next week will be the main market mover until the report on Friday if we get some surprises.

Via Barchart

Equity Markets

The equity markets had a great November seeing strong gains across the board as the Fed speak has turned dovish and inflation continues to cool. The markets are pricing in the Fed beginning to cut rates in the first half of 2024 while the general consensus by large companies and funds is that a mild recession is still in the cards next year. The big names had a good month and the 10-year note fell, but it was encouraging to see some laggards join the party. The end of the year always involves some shuffling, but economic data will continue to move the markets now that earnings are past.

Via Barchart


Other News

  • Charlie Munger passed away this week at the age of 99. A longtime investor and one of the brightest minds for financial markets the Berkshire Hathaway investor left his mark and knowledge on the financial markets.
  • The next WASDE Report is Friday, December 8 at 12 ET
  • Brazil is set to join OPEC+. Brazil produces about 3.7 million barrels a day which makes it a top 10 oil producing country.
  • The ceasefire between Israel and Hamas ended as hostage swap negotiations stalled. The unrest in the Middle East will continue to dominate headlines.


Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].


21 Nov 2023

Merucci- Milk, Feed, Cattle market update

As we head into end of year, take time to make sure you have minimized your risk and kept yourself open for better prices if they may occur.  It has been a difficult stretch for milk prices which is evident by clients that have had consistent coverage in place are shaping up to get DRP indemnities for their 6th quarter in a row!  Don’t get caught thinking that you know where prices are heading next year.  Here are good ways to protect negative outcomes and still be positioned for better prices in milk, feed and cattle.


Milk-  This part is simple, DRP has worked as advertised over the last few years.  There have been both good and bad prices.  DRP has paid out nicely in the low price times and still allowed for availability to participate in some of the highest milk checks on record.  I strongly recommend having at minimum 25% of milk protected in both Q2 and Q3.  Utilizing the 1.5 factor, this will protect 33% and still leave plenty of room to add coverage if prices improve.  Looking at the historical comparisons, milk prices are pretty good and with the subsidy provided for DRP purchase, the cost is well worth the investment in price security.


Corn and Meal-  Now the attention is south of the equator.  Don’t put yourself in a position of guessing weather outcomes and China demand, which we will be hearing a lot about in the next few months.  There are plenty of technical and fundamental cases being made for higher or lower prices for corn and meal.  It is unnecessary to take this risk.  Buy May calls in meal; buy calls or risk reversals in corn.  Calls in May meal will give protection against a disastrous crop in Argentina and Brazil.  For corn, whichever timeframe you are concerned about March through December, add an option strategy that best fits your needs.


Cattle-  Cattle prices, not to mention DRP,  have been a savior to many dairies.  Now that the straight climb up has seemingly ended, we now will be experiencing some volatility and up and down markets.  With the emergence of beef/dairy, I’m an advocate of LRP for all dairies.  Beef prices affect dairy revenue, why not have subsidized coverage to protect that revenue stream?  Look to add LRP on upticks in feeders or live cattle and be open to trading futures and options vs. LRP policies.


Looking back to the beginning of this year and the newsletters that charge subscription fees and “predict” market direction, not very many, if any, predicted this market.  Don’t get caught thinking you know what is ahead.  Your business won’t have a bad year because your invested in downside protection, but it could have a bad year if you don’t.


I look forward to hearing from you and discussing individualized risk management plans that best fit your business.  Have a wonderful Thanksgiving weekend.



Mike Merucci


[email protected]

17 Nov 2023

Hedging: Futures and Options 101

Futures trading has been around for hundreds of years with the first exchange, Dojima Rice Exchange, starting in Japan in 1730.

The United States got its first official commodity trading exchange in 1848 when the Chicago Board of Trade (CBOT) was created. Chicago was the ideal location for the exchange with rail lines and proximity to the heartland of American agriculture and an already booming metropolis. As one would expect, corn, soybeans, and wheat were among the first futures contracts traded with corn leading the way.

Eventually the CBOT merged with the CME (Chicago Mercantile Exchange) to form the CME Group that exists today as the world’s largest financial derivatives exchange. While futures and options are used to trade several asset classes through the CME, we will focus on the agriculture sector and the uses there.

What are Futures and Options?

Futures and options are tools that traders use to both speculate and hedge. A futures contract is a legally binding financial instrument that allows someone to buy or sell a standardized asset for delivery at a set future time for a set price. Futures are different from forward contracts because of the standardized contracts, and they are traded on exchanges. While a forward may be customized with the point of delivery the contracts traded on exchange have defined contract amounts (see chart below).

An options contract is the right but NOT the obligation between two parties to make a potential transaction of an underlying security at a preset price before or on the expiration date.

As we go through all the uses and potential ways futures and options can be used here are some questions you should be able to answer at the end.

  • What are the basic uses of futures and options?
  • What advantages and disadvantages does using futures and options have?
  • How can I use these as risk management tools?
  • How to calculate the profit or loss from a trade?

Hedging with Futures

Hedging in the futures world can best be thought of as a type of insurance. It is used to manage the risk that prices could move adversely to your interests. Hedging is used in all markets to manage positions and reduce exposure to various risks including but not limited to dramatic increases or decrease in price.

Hedging is used in the production agriculture industry to help protect downward price movements and for buyers/ end users to lock in prices for goods that will be sold/bought in the future. Whether you are a farmer selling your crop or an end user buying the grain there are hedge strategies that are available for your operation.

While futures are the most straight forward method of hedging, options are also very popular as they provide some flexibility. Let’s look at a couple examples:

Ex. You are a producer and want to hedge the risk of prices moving lower:

A farmer believes the basis, currently -$0.20, will improve over the next couple months but is happy with a $6.50 futures price. They sell $6.50 March futures while storing the grain. They were right and basis is flat come February, but the price fell to $6.40. This would result in a final price of $6.50 for the farmer minus fees and commissions ($0.10 trade profit + $0.00 basis + $6.40 cash price – fees and commissions). If they had just made the sale at the time when basis was -$0.20 they would have only received a price of $6.30.

On the other side if prices had gone up to $7.00 and basis had remained at -$0.20 the farmer would receive that $6.30 price minus fees and commissions ($7.00 price at time of sale to elevator -$0.50 loss from trade – $0.20 basis – fees and commissions = $6.30). If they were right about basis and it did improve to $0.00, then the price they would receive is $6.50 minus fees and commissions ($7.00 price from elevator – $0.50 loss from trade + $0.00 basis – fees and commissions)

*Fees and commissions vary by broker

Ex. You are an end user that buys grain to feed cattle.

The feeder is comfortable paying current prices because they believe they can make a profit locking in part of the input costs at current levels but is worried prices will move higher. They buy 25,000 bushels for a future month (let’s use July) for $6.00. If prices go up to $6.50 when it is time to buy the corn in July, basis remains the same, they will save themselves $.50 cents a bushel or a total of $12,500 – minus any fees and commissions* ($6.50 x 25,000 = $162,500; $6.00 x 25,000 = $150,000). In this scenario they were right and were able to protect against adverse price movements and save themselves money.

If they had been wrong and prices moved lower by 50 cents, then they would have cost themselves $12,500. The payoff of hedging comes with knowing you have certain prices locked in and help set ceilings and floors to help you budget and manage risk.

While these are some straightforward ways in which futures can be used to hedge, there are other strategies that traders employ that may be specific to the customer. For more information on hedging grains check out the education courses on the CME Group website.

Hedging with Options

Being long an options contract is the right, but not the obligation, to buy or sell the underlying futures contract at a predetermined price on or before a given date in the future. Many customers like these because they require less capital up front, but that does not eliminate risk. Below the charts show the difference in movement.




Via Schwab

Via StackExchange

Options can be used to reduce uncertainty and limit loss without significantly reducing the potential returns from the other side. There are put and call options that each have different uses and strategies around. Here is an example with each.

Ex. You are a farmer looking to limit downside risk.

1 Dec corn put option is bought for 20 cents per bushel with a strike of $6.50 expiring in Nov. The 1 contract represents 5,000 bushels. The farmer is risking the $1,000 + commissions and fees he paid up front (5,000 bu x $0.20) to protect a move lower. If the price when the option approaches maturity of Dec corn is $6.00 then the farmer successfully protected that $6.50 price while risking the $0.20 (the option would cost around $0.50 then and you would sell it to get out of it or exercise it and get assigned a short position from $6.50).  The total profit on the trade would be $0.30 less commissions (Option strike price of $6.50 – Market settlement $6.00 – cost of the option $0.20).

If the price had moved higher to $7.00 you would benefit from the higher price to make your sale but the $0.20 you paid for the option would be worth close to $0.00, making your actual price $6.80.

            Ex. You are an end user looking to limit the upside price risk.

1 Dec corn call option is bought for 20 cents with a strike of $6.50 expiring in Nov. The end user is risking the $1,000 + commissions and fees he paid up front to protect against a move higher. If the price when the option approaches maturity of Dec corn is $7.00 then you are protected against that move while risking the $0.20. The option would be worth close to 50 cents ($2,500-commissions and fees – the cost of the option $1,000 for a total profit of $1,500 per contract).

If the price had moved lower to $6.00 then you would benefit from buying at a lower price but would lose the 20 cents with the price of the option being close to $0.00, making your real purchase price closer to $6.20.

There are advantages and disadvantages to using either hedging strategy, so it is important to think about what you are trying to accomplish when taking a position. The advantages include ease of pricing, liquidity, and price risk hedging. By actively hedging you can work to limit the price risk or lock in prices that you like or believe can lock in a profit margin for your business. The disadvantages are the risk of being wrong and adverse price movements against your position. As shown above, while these tools can be very helpful it is important to understand their limitations and risks.


Futures and options are also used in the markets every day for speculative purposes allowing for additional volume and liquidity to support the hedging side of the market. That said, with additional volume comes increased volatility and price movement forcing all market participants (hedgers and speculators) to be highly focused on managing risk and profit margins.  Practically, the examples above work the same way for someone trading these contracts that do not deal with the physical side.

For more on how hedge funds are utilizing commodity markets, check out the RCM Alternatives Guide to Commodity Trend Following:


Futures initial margin is the amount of money that you must deposit in advance of entering a futures position with the FCM (Futures Clearing Merchant). Unlike the margin in a stock account, there is no money being borrowed or an interest rate to be paid for using house funds.  Rather, margin is cold / hard cash deposited by the customer in their account at the FCM that acts like a partial downpayment to hold the position.  If the market moves against the initial trade, traders can expect that additional funds will need to be deposited.

Similar to futures margin, option margins are an important factor when using options strategies. Margin is the cash an investor must have on deposit as collateral before purchasing (buying) or writing (selling) options. Often times, the initial margin requirement for an option is low; however, there are more factors to consider with option margin pricing – including but not limited to changes in volatility or the proximity to option expiration.

In the case of both futures and options, margin requirements are set by the exchanges and change from time to time at the sole discretion of either the exchange or FCM.

Maintenance margin is the minimum equity an investor must hold in the account after the purchase to continue to hold the position.

Expiration and Settlement

Expiration dates vary based on the derivative being traded but is the last day that derivatives contracts are valid. Most option contracts are closed or rolled before expiration to avoid assignment.

If the futures contract is held too long, then the customer could risk being assigned delivery. Over 95% of the derivatives are exited early but there are options to take delivery should that be desired.

A link to the expiration calendar can be found here.


In summary, futures and options trading offer a dynamic landscape for both hedging and speculative purposes. Whether you’re a farmer safeguarding against price fluctuations or a trader seeking to capitalize on market movements, understanding these financial instruments is crucial.

The advantages of ease of pricing and liquidity come hand in hand with the responsibility to manage risks diligently. As we’ve explored the intricacies of hedging with futures and options, delving into the significance of margin requirements and the nuances of expiration and settlement, it’s evident that these tools wield immense potential when managed properly.

RCM Ag Services

Farmers, producers and end users have special needs that our experienced hedging/ag trading team have been working through with clients for years. Improve your hedging strategy by making use of RCM’s market analysis and discussing hedge solutions with our local experienced agricultural advisors.  Contact us Here:


To dive even deeper into the world of futures and options, explore the education materials on the CME Group website here.

Happy trading!