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rsbs
Veteran Advisor

2008 Memories

I remember being smart, having a hedge account, and locking in high $3 and low $4 prices in the spring and summer, and adding to my "hedges" as the market moved higher. As prices kept going up, I kept selling positions for the next year, and then the year after that....soon I got weary of the daily call from the brokerage....$10,000....$15,000 ....Please transfer this money...thank you. All of my cash reserves at the time....around $200,000 were soon depleted and I started on my credit line....$500,000. Blew through another $100,000.....$200,000.....$300,000.....so I was out over $500,000 of my money and the bank's money if I would close out the "hedges". My guts were boiling over everyday....couldn't sleep.....headaches.....hated what was going on. Maybe my growing inventory was increasing in price, but so was the price of inputs. I started doing "what if's" in my mind...what if corn goes to $10, or even higher....I would have to close the positions and lose a ton of money.

Finally as the fall came that year, the market broke....and broke hard. I got back the borrowed money, then it kept going down, and I got back all of my reserves, plus a check for $50,000. Hardest money I ever earned, and I have never taken a speculative position since then. Never will. I am like Hobby.....Plant it, Bin it, sell it.

The post script on this experience was that a farm was listed in my area that they wanted about $5000 per acre for, with the right to buy the farm back. I offered $2500 that fall and no restrictions, and  with corn at $2.80 and going lower my offer was accepted.  From $6 corn to less than $3 in six months, it was quite a roller coaster and I emerged a little wiser, but mainly very grateful at the good luck to get out whole, and go on. It could have ended a lot differently.

4 Replies
marketeye
Veteran Advisor

Re: 2008 Memories

rsbs,

 

Thank you for sharing your experience. I'm sure it will make folks think twice in this price environment. These are the types of grain marketing thoughts that can really help people that check into this discussion group. Thank you.

 

Mike

k-289
Senior Advisor

Re: 2008 Memories

Witnessed  a  gentleman  get  caught in  """ pork  bellies  ''''  haydaze  was a  million  ahead  the    80's  until  -  the  day  after  cold  storage  report -  locked  limit  down  trap  -  -  -

Seems  when  trade  limits  are  """""   adjusted  '''''''   to  meet    ''''  marketing  conditions '''''   =  buyer  beware  ---

That  gentleman  was  financially  disabled  after  working  a  honest , hard  life  ,  with  HIS  comment  being  I  didn't  want  to  pay  all  of  those  taxes , unfortunately  I  was  to  bullheaded  - - -     

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sw363535
Honored Advisor

Re: 2008 Memories

I couldn't have done that at the time, but could have been in similar shoes........ I was in a forward contract trap -- so to speak.  I remember selling corn for $3+ for the first time in my life --2006 or 7.  So sold some in a second year out. Just to get the luxury of delivering it when the market was at $4.50 and expenses were higher.  Had to plant corn when there were better options.  --it was safer than rsbs but ground out longer and in the long run hurt just as much.  

Selling the come...... is betting the come.    Neighbors who is out of business now locked into corn through seed promotions for years into the future by building grain storage or new trucks by guaranteeing future purchases -- had similar experiences just not the gut rippers rsbs experienced.... 

SW is not a region that guarantees a crop every year. 

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sdholloway56
Senior Advisor

Re: 2008 Memories

More prescient, and less risky- I was in an IB office in that time and the broker showed me a statement- he covered up the name but I pretty much knew who it was.

Anyway, the guy had been buying puts steadily all the way up, and at the moment the net was in excess of $1M. So sure, it is possible.

I have no idea if and when he cashed out.

As to what that might mean in regards to the current situation I also have no idea. But you can spend some money on some puts and in the end just have to pay at little less tax.

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