Returns And Risk From Alternative Pre-Harvest Soybean Pricing Strategies Using Cash, Futures, And Options Markets

With the 1 ifting of the ban on commodity options, in 1983, new alternatives for marketing soybeans became available. Because options are new there has been 1 imited research on the impact they have on farmers' returns and risk. The objectives of this study were to: 1) test how option strategies perform compared to futures and cash strategies, 2) evaluate strategies that sell options as well as multiple option positions, and 3) compare adjustment strategies to set and hold stfategies. The evaluation criteria were returns measured as the weighted average revenue per bushel, and risk measured as the average negative deviation below total cost of production. This study modeled a Northern Indiana farmer marketing 500 acres of soybeans per year from 1975 to 1988. A computer simulation was developed to evaluate 48 different marketing strategies. The marketing strategies fell in four general classes: 1) Control Strategies, 2) Timing Strategies, 3) Cost of Production Strategies, and 4) Technical Analysis Strategies. Results indicate that options generated 9 of the top 10 revenue producing strategies and 5 of the 10 lowest risk producing strategies. Non-speculative put and call combination strategies achieved near optimum results, while the adjustment by capturing pre-harvest price moves.