There Are Numerous Option Strategies That Can Be Used By Producers

DR. AARON SMITH

KNOXVILLE, TENNESSEE

Understanding key data release dates in the crop marketing year is essential for financial success. The crop insurance price discovery period (February 1-28 in Tennessee), Prospective Plantings Report (March 31), Acreage Report (June 30), Crop Acreage data (mid-August), and the monthly WASDE reports (around the 10th of each month) are all key data release dates that provide the potential for changes or amplification of market direction. Understanding when reports are released and how to manage price risk in both the short and long term is essential. 

One of the most valuable tools to strategically manage in season price risk are options. Options provide the ability to mitigate short-term risk without establishing a final price or delivery of the commodity. There are numerous option strategies that can be used by producers; however, they all revolve around purchasing or selling puts and calls. Simply stated, a put option allows the purchaser to establish a futures market price floor at the cost of a premium. The seller of the put option collects the premium but absorbs the financial risk associated with a decline in the underlying futures contract below the put strike price. A call purchaser establishes a price ceiling at the cost of the call premium. The call seller collects the premium and has financial risk if the underlying futures contract trades above the call strike price. 

An example of using a put option using 2025 data. On January 31, a $4.70 December corn put option could have been purchased for 44 cents establishing a $4.26 futures floor. This week the December contract closed at $4.12. So, the put option is 14 cents in the money. However, the premium for a $4.70 put option on July 11 was 62 cents. So, the purchaser could exit their position and realize a gain of 18 cents (62-44 cent initial premium). The difference between the 14 and 18 cents is time value (expiration of the put is not until December). As such, the purchaser can weigh the advantages and disadvantages of liquidating the position or maintain the downside protection. 

Understanding how to strategically use options during the season to mitigate price risk for defined intervals is a powerful tool for producers to utilize. Options strategies can be complicated and require nuance as to when a position should be entered or exited. Working with a qualified professional is strongly encouraged. 

Corn

Across Tennessee, average corn basis (cash price-nearby futures price) remained unchanged at West, Northwest, North- Central, West-Central, and Mississippi River elevators and barge points. Overall, basis for the week ranged from 5 under to 40 over, with an average of 18 over the September futures at elevators and barge points. Ethanol production for the week ending July 4 was 1.085 million barrels per day, up 9,000 compared to the previous week. Ethanol stocks were 23.959 million barrels, down 0.158 million barrels compared to last week. Corn net sales reported by exporters for Jun 27- July 3 were net sales of 49.7 million bushels for the 2024/25 marketing year and 35.0 million bushels for the 2025/26 marketing year. Exports for the same period were up 15% compared to last week at 66.1 million bushels. Corn export sales and commitments were 102% of the USDA estimated total annual exports for the 2024/25 marketing year (September 1 to August 31) compared to the previous 5-year average of 101%. Cash prices ranged from $3.93 to $4.44 at elevators and barge points. September 2025 corn futures closed at $3.96, down 24 cents since last Friday. For the week, September 2025 corn futures traded between $3.94 and $4.13. Sep/Dec and Sep/Mar future spreads were 16 and 33 cents. 

Nationally, the Crop Progress report estimated corn condition at 7% good-to-excellent and 5% poor-to-very poor; corn silking at 18% compared to 8% last week, 22% last year, and a 5-year average of 15% and corn dough at 3% compared to 3% last year and a 5-year average of 2%. In Tennessee, corn condition was estimated at 68% good-to-excellent and 9% poor-to-very poor; corn silking at 64% compared to 45% last week, 66% last year, and a 5-year average of 55%; and corn dough at 14% compared to 2% last week, 11% last year, and a 5-year average of 9%. This week, Oct/Nov cash contracts ranged from $3.74 to $4.06 at elevators and barge points. December 2025 corn futures closed at $4.12, down 25 cents since last Friday. Downside price protection could be obtained by purchasing a $4.20 December 2025 Put Option costing 22 cents establishing a $3.98 futures floor. March 2026 corn futures closed at $4.29, down 23 cents since last Friday. 

Soybeans

Across Tennessee the average soybean basis strengthened or remained unchanged at West, Northwest, North-Central, West- Central, and Mississippi River elevators and barge points. Average basis ranged from 45 under to 10 over the August futures contract, with an average basis at the end of the week of 8 under. Soybean net weekly sales reported by exporters were net sales of 18.5 million bushels for the 2024/25 marketing year and 9.1 million bushels for the 2025/26 marketing year. Exports for the same period were up 57% compared to last week at 14.5 million bushels. Soybean export sales and commitments were 100% of the USDA estimated total annual exports for the 2024/25 marketing year (September 1 to August 31), compared to the previous 5-year average of 102%. Cash soybean prices at elevators and barge points ranged from $9.64 to $10.42. August 2025 soybean futures closed at $10.04, down 51 cents since last Friday. For the week, August 2025 soybean futures traded between $9.99 and $10.47. The September soybean-to-corn price ratio was 2.51 at the end of the week. September 2025 soybean futures closed at $9.95, down 46 cents since last Friday. Aug/Sep and Aug/Nov future spreads were -9 and 3 cents. 

Nationally, the Crop Progress report estimated soybean condition at 66% good-to-excellent and 7% poor-to-very poor; soybeans emerged at 96% compared to 94% last week, 98% last year, and a 5-year average of 98%; soybeans blooming at 32% compared to 17% last week, 32% last year, and a 5-year average of 31%; and soybeans setting pods at 8% compared to 3% last week, 8% last year, and a 5-year average of 6%. In Tennessee, soybean condition was estimated at 70% good-to-excellent compared to 8% poor-to-very poor; soybeans emerged at 86% compared to 79% last week, 93% last year, and a 5-year average of 93%; soybeans blooming at 41% compared to 24% last week, 51% last year, and a 5-year average of 34%; and soybeans setting pods at 12% compared to 3% last week, 18% last year, and a 5-year average of 9%. Oct/Nov cash prices at elevators and barge points were $9.67 to $10.09 for the week. November 2025 soybean futures closed at $10.07, down 42 cents since last Friday. Downside price protection could be achieved by purchasing a $10.10 November 2025 Put Option which would cost 32 cents and set a $9.78 futures floor. Nov/Dec 2025 soybean-to-corn price ratio was 2.44 at the end of the week. 

Cotton

North Delta upland cotton spot price quotes for July 10 were 65 cents/lb (41-4-34) and 67 cents/lb (31-3-35). Upland cotton adjusted world price (AWP) decreased 0.63 cents to 54.71 cents. Cotton net weekly sales reported by exporters were net sales of 75,100 bales for the 2024/25 marketing year and 81,500 bales for the 2025/26 marketing year. Exports for the same period were down 6% compared to last week at 240,900 bales. Upland cotton export sales were 110% of the USDA estimated total annual exports for the 2024/25 marketing year (August 1 to July 31), compared to the previous 5-year average of 116%. 

Nationally, the Crop Progress report estimated cotton condition at 52% good-to-excellent and 17% poor-to-very poor; cotton squaring at 48% compared to 40% last week, 51% last year, and a 5-year average of 49%; and cotton setting bolls at 14% compared to 9% last week, 18% last year, and a 5-year average of 15%. In Tennessee, cotton condition was estimated at 58% good- to-excellent and 12% poor-to-very poor; cotton squaring at 57% compared to 37% last week, 68% last year, and a 5-year average of 59%; and cotton setting bolls at 7% compared to 1% last week, 15% last year, and a 5-year average of 14%. December 2025 cotton futures closed at 67.42 cents, down 1.04 cents since last Friday. For the week, December 2025 cotton futures traded between 67.13 and 68.37 cents. Dec/Mar and Dec/May cotton futures spreads were 1.33 cents and 2.38 cents. Downside price protection could be obtained by purchasing a 68 cent December 2025 Put Option costing 2.71 cents establishing a 65.29 cent futures floor. March 2026 cotton futures closed at 68.75 cents, down 1.03 cents since last Friday. May 2026 cotton futures closed at 69.8 cents, down 1.02 cents since last Friday. 

Wheat 

Wheat net weekly sales reported by exporters were net sales of 20.9 million bushels for the 2025/26 marketing year and 0.3 million bushels for the 2026/27 marketing year. Exports for the same period were down 19% compared to last week at 16.4 million bushels. Wheat export sales were 35% of the USDA estimated total annual exports for the 2025/26 marketing year (June 1 to May 31), compared to the previous 5-year average of 32%. Nationally, the Crop Progress report estimated winter wheat condition at 48% good-to-excellent and 18% poor-to-very poor; winter wheat harvested at 53% compared to 37% last week, 62% last year, and a 5-year average of 54%; spring wheat condition at 50% good-to-excellent and 15% poor-to-very poor; and spring wheat headed at 61% compared to 38% last week, 56% last year, and a 5-year average of 58%. Wheat cash prices at elevators and barge points ranged from $4.87 to $5.26. 

September 2025 wheat futures closed at $5.45, down 11 cents since last Friday. September 2025 wheat futures traded between $5.41 and $5.57 this week. Sep/Dec and Sep/Jul future spreads were 20 and 56 cents. The September wheat-to-corn price ratio was 1.38. December 2025 wheat futures closed at $5.65, down 13 cents since last Friday. July 2026 wheat futures closed at $6.01, down 15 cents since last Friday. Downside price protection could be obtained by purchasing a $6.05 July 2026 Put Option costing 54 cents establishing a $5.51 futures floor.   ∆

DR. AARON SMITH

UNIVERSITY OF TENNESSEE

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