Financial Services
Gradable Financial Services September Newsletter
Corn prices have rallied nearly $1 since mid-summer, making this a great time for farmers to lock in cash sales at delivery.
Corn prices have rallied nearly $1 since mid-summer, making this a great time for farmers to lock in cash sales at delivery.
CH’27 Participator: Set a Floor and Still Participate if the Rally Continues
Our latest report highlights the big change in flow we see as we enter harvest, with growers switching from options sellers to buyers, with the most popular tool for that being the Participator. See below for details Participator: The grower fixes a price and continues to own upside participation on rallies. Similar to a minimum price contract, the Participator has two distinct advantages: 1) it is significantly cheaper premium outlay; 2) it has an automatic profit-taking mechanism, where it locks in participation daily, helping growers to avoid missing a rally and letting expensive calls expire worthless.
The Flow Report Corn prices have rallied nearly $1 since mid-summer, making this a great time for farmers to lock in cash sales at delivery. Strong rallies can make sellers hesitant—no one wants to sell too early and miss out. When FOMO kicks in, we start to see increased demand for our Participator structure (floor price with upside participation on rallies). Starting in September and peaking in Oct and Nov, we typically see Participator volume pick up from near 0% to about 10-15% of total volume traded. We’ve also seen grower interest in buying vanilla calls over the past week. We actively discouraged this a few weeks ago at peak prices and vols but it’s starting to make sense now for Z26 and H27. Not only have prices pulled back over the past weeks but implied volatility has crept much lower and H27 has even broken below the median. With the crop nearly made, risk premiums are bleeding out of the market. This makes options, while not yet cheap, far more reasonable to own, particularly if they provide the courage to make a sale while prices are still relatively good.
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