Since the start of 2024, soybean futures prices have declined dramatically (Figure 1). The March and November contracts have declined 88 cents and 57 cents, respectively. The primary reason for the decline in soybean prices has been the projected large crop in South America. The February USDA WASDE report estimated soybean production in Argentina and Brazil at 1.84 and 5.73 billion bushels, respectively, compared to last year’s record Brazilian crop of 5.95 billion bushels and Argentina’s drought-stricken crop of 0.92 billion bushels. In aggregate, the two South American soybean production powerhouses are projected to increase year-over-year production by 700 million bushels. Increased production with moderate global demand will continue to weigh on futures market prices in 2024. Prices could be pushed higher if China increases soybean purchases or drought impacts US soybean production.
Figure 1. Daily Closing Futures Prices for March (ZSH24) and November (ZSX24) Soybeans, January 2 to February 13, 2024
Producers may want to consider using options to help mitigate price risk during the production or marketing year. Options can be a useful tool to manage price risk during specific time intervals. Past articles have examined mitigating price risk between the time when inputs were purchased and projected crop insurance prices were determined (Duncan, 2024). This article examines two option strategies for the start of the 2024 crop.
Strategy #1: Purchase a put option. Purchasing a put option establishes a futures price floor for the selected strike price (Table 1). For example, a producer could purchase a $10.20 put option for 16.5 cents and set a $10.03 ½ futures floor. Strike prices and premiums can be selected to reflect the purchaser’s risk preference. No margin is required for strategies that purchase put options.
Table 1. Strike price and premium for November soybean put options, February 14, 2024
| Strike (cents/bu) | Premium (cents/bu) |
| 1000-0P | 12.9 |
| 1020-0P | 16.5 |
| 1040-0P | 20.9 |
| 1060-0P | 26.0 |
| 1080-0P | 32.1 |
| 1100-0P | 39.1 |
| 1120-0P | 47.0 |
| 1140-0P | 55.9 |
| 1160-0P | 65.8 |
| 1180-0P | 76.5 |
| 1200-0P | 88.1 |
Strategy #2: Purchase a $10.60 November put option for 26 cents and sell a $13.00 November call option for 26 cents. This strategy fences in a futures price between $10.60 and $13.00 for a net zero premium. The strategy protects against futures prices declining below $10.60 at the cost of forgoing price increases above $13.00. This strategy relies on maintaining margin requirements.
There are two primary concerns that producers voice when examining options 1) premiums are too high and 2) options often expire worthless. These two factors are interrelated as options should be used for a defined period of risk and then the position liquidated if the option is out-of-the-money, before the option expires. This avoids having the option expire worthless and can assist in recouping part of the premium. If options are in the money, then the position can be exercised, and financial gains realized. For experienced users of options, there are near infinite variations in strategy to consider (contract month, strike price, buy/sell puts or calls). Developing knowledge on using options adds another tool producers can use to manage their price risk.
References and Resources
Barchart.com. November Soybean Options Price Quotes. https://www.barchart.com/futures/quotes/ZSX24/options.
Duncan, W.H. 2024. “Bridging the Price Risk Gap.” Southern AgToday. https://southernagtoday.org/2023/11/27/bridging-the-price-risk-gap/
USDA World Agricultural Supply and Demand Estimates (WASDE) Report. Office of the Chief Economist. February 2024. https://www.usda.gov/oce/commodity/wasde
Smith, Aaron. “Soybean Option Strategies.” Southern Ag Today 4(8.1). February 19, 2024. Permalink
