Managing Grain Market Risk Without the Guesswork
Apr 04, 2025
If you ever hear someone in the grain marketing industry claim they can predict the next move of the markets, you're either talking to a wizard or, more likely, someone my grandfather would’ve called a fibber. Markets often behave unpredictably. While there are variables we can monitor and trends we can observe, other factors can influence the market in surprising ways.
For example, on March 31st, the USDA released the Prospective Plantings Report. The report shows corn planted acres up 5% to 95.3 million acres, December Corn futures rallied before closing down ½ cent. Soybean planted acres dropped 4% and futures fell 9 ¾. Wheat acres decreased by 2% and futures rallied 4 ½. Don’t try to outguess the market. Instead, manage the risk that is in front of you. There is a risk to the downside of price loss, there is a risk of lost opportunity. As an example, let’s look at one contract that has provided a good solution with producers so far this year: The 1x2 contract in July 26 Wheat.
So what is a good price for 2026 wheat? That is hard to say. At the time of writing this, the July 25 futures are at 5.70, while July 26 is at 6.36. By that comparison, 6.36 looks pretty good. If that number appears profitable for your farm, you can lock that in with a Hedge to Arrive (HTA) or Cash contract.
But what if the market moves higher? To retain upside potential a different tool might be helpful. A great tool to do that is a forward floor, which sets a floor price and retains unlimited upside potential. Every tool manages risk and opportunity differently. A contract with the least risk and the greatest opportunity carries the highest investment.
I’m not providing a quote, but as an example with hypothetical numbers let’s say a July 26 6.40 Forward Floor carries an investment of 80 cents. The unlimited upside is nice, but the worst case after the fee would be 5.60. A scenario like this has prompted producers to consider the 1x2 contract. A 1x2 is one bought floor and two sold ceilings. You buy a floor to protect from downside risk and you sell a ceiling to reduce the required investment.
With a 1x2 contract, the 2nd ceiling requires some explaining. Sticking with the previous example, the 6.40 floor is 80 cents, and each ceiling sold at 7.40 collects 40 cents. In this hypothetical example, the net investment is 0.
Before you either get too excited and market all your 26 crop or lump me in with the wizards and fibbers, a word of caution. If at maturity the market is over the ceiling price, this contract doubles. This means if you executed a 5,000 bushel 1x2 contract and at maturity the market is above your ceiling, 10,000 bushels are now sold at your ceiling price. This is only a bad thing if you are not expecting it. Remember, this happens because the market has rallied over a dollar! Just make sure you have planned for the possible double-up, so you can celebrate the gain instead of sweating the extra bushel obligation.
This contract isn’t right for everyone. But if you have the production and it fits your profitability targets, this is one strategy that can provide the same level floor as an HTA while retaining a dollar of upside opportunity. Maybe you’re working with fewer acres and a 5,000 or 10,000 bushel contract doesn’t work for you. Don’t worry, other solutions can fit your operation and help you reach your goals. Don’t let the market volatility and movement cause paralysis in your decision-making. Take an honest look at the risk facing your farm and identify the solutions that address your concerns and needs.
Article provided by Marshall Anderson, Grain Marketing Specialist
For example, on March 31st, the USDA released the Prospective Plantings Report. The report shows corn planted acres up 5% to 95.3 million acres, December Corn futures rallied before closing down ½ cent. Soybean planted acres dropped 4% and futures fell 9 ¾. Wheat acres decreased by 2% and futures rallied 4 ½. Don’t try to outguess the market. Instead, manage the risk that is in front of you. There is a risk to the downside of price loss, there is a risk of lost opportunity. As an example, let’s look at one contract that has provided a good solution with producers so far this year: The 1x2 contract in July 26 Wheat.
So what is a good price for 2026 wheat? That is hard to say. At the time of writing this, the July 25 futures are at 5.70, while July 26 is at 6.36. By that comparison, 6.36 looks pretty good. If that number appears profitable for your farm, you can lock that in with a Hedge to Arrive (HTA) or Cash contract.
But what if the market moves higher? To retain upside potential a different tool might be helpful. A great tool to do that is a forward floor, which sets a floor price and retains unlimited upside potential. Every tool manages risk and opportunity differently. A contract with the least risk and the greatest opportunity carries the highest investment.
I’m not providing a quote, but as an example with hypothetical numbers let’s say a July 26 6.40 Forward Floor carries an investment of 80 cents. The unlimited upside is nice, but the worst case after the fee would be 5.60. A scenario like this has prompted producers to consider the 1x2 contract. A 1x2 is one bought floor and two sold ceilings. You buy a floor to protect from downside risk and you sell a ceiling to reduce the required investment.
With a 1x2 contract, the 2nd ceiling requires some explaining. Sticking with the previous example, the 6.40 floor is 80 cents, and each ceiling sold at 7.40 collects 40 cents. In this hypothetical example, the net investment is 0.
Before you either get too excited and market all your 26 crop or lump me in with the wizards and fibbers, a word of caution. If at maturity the market is over the ceiling price, this contract doubles. This means if you executed a 5,000 bushel 1x2 contract and at maturity the market is above your ceiling, 10,000 bushels are now sold at your ceiling price. This is only a bad thing if you are not expecting it. Remember, this happens because the market has rallied over a dollar! Just make sure you have planned for the possible double-up, so you can celebrate the gain instead of sweating the extra bushel obligation.
This contract isn’t right for everyone. But if you have the production and it fits your profitability targets, this is one strategy that can provide the same level floor as an HTA while retaining a dollar of upside opportunity. Maybe you’re working with fewer acres and a 5,000 or 10,000 bushel contract doesn’t work for you. Don’t worry, other solutions can fit your operation and help you reach your goals. Don’t let the market volatility and movement cause paralysis in your decision-making. Take an honest look at the risk facing your farm and identify the solutions that address your concerns and needs.
Article provided by Marshall Anderson, Grain Marketing Specialist