Producer Hedging Strategies for Historic Market Volatility

Few commodities have a more uncertain outlook in 2013 than corn, given persistent drought in the central U.S. and the prospect of a sharp jump in planted acres this spring may generate a record harvest near 15 billion bushels, according to The Hightower Report.

Considering other factors, such as South American crops and demand from ethanol producers and livestock feeders, the new-crop December corn futures contract "is quite capable of moving several dollars in either direction by the end of the year," Hightower analysts wrote in a new report.

"It will be difficult for either speculators or hedgers to maintain any single trading bias over the course of the upcoming season," the report said. Hightower suggested three possible, primarily options-based trading strategies for producers, noting "it may prove to be much more beneficial to go looking for volatility… as there is little chance that corn prices are going to stay subdued and remain within a tight trading range."

In trading on February 7, December corn futures fell 5 ½ cents to $5.73 ¼ a bushel, down almost 10% since the beginning of December. Read the full report for more on grain hedging strategies from The Hightower Report, a CME Group featured contributor.

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