This week: The three-step risk management plan and new crop basis.
As part of our three-step risk management plan we always recommend:
#1. Buy RP crop insurance
#2. Hedge 50 to 80% of your insured bushels.
#3. Protect the rest of your production with puts.
The question came in this week what about how to manage new crop basis risk. With large corn and soybean inventories–and a good chance of trendline or better yields in 2019–odds are good you will see not only lower futures but wide basis levels again by next fall.
If you do not have any soybean storage, then between late March and early May it is usually a good idea to get your fall basis locked in. Once you get past planting (unless a major weather scare develops), futures usually move lower, and cash basis bids widen out in anticipation of large supplies moving to market at harvest.