Put Option Strategies Offer Buffer From Further Price Declines

With corn and soybean prices down sharply from drought-driven record highs reached last summer and holding "significant" risk for further declines, grain farmers should consider hedging their 2013 crops earlier than normal, analysts with The Hightower Report said.

Corn futures for delivery in December 2013, currently around $6.23 a bushel, are more than $1 below nearby contracts. The situation is similar for November 2013 soybeans. Still, those "new-crop" prices offer historically high returns that could be endangered by weak global economies or other factors.

"Our studies show that corn producers might make more money with December 2013 corn priced $6.15 than with the old-crop priced at $7.32, if it means they are achieving better yields," analysts with The Hightower Report, a CME Group contributor, wrote in a new report.

"We would strongly encourage corn producers to consider any type of hedging strategy that protects at least some of the high profitability potential for the 2013 crop year," they said. Leveraged put option strategies, for example, "can actually increase effective prices in years of down-trending markets," and capture stronger prices if U.S. or South America weather isn’t ideal.

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