When value is uncertain, sell volatility

By Keith Schap
Value can be an elusive concept. In the grain and oilseed markets, analysts can (most of the time) locate an approximate fair value by studying a couple of years worth of supply projections and demand estimates.

This value price then serves as a benchmark. A weather scare or demand shift may result in higher or lower prices, but the market will generally return to a level close to this benchmark once the scare is digested.

However, the terms of the supply-demand equation occasionally shift enough to create a situation in which the market is at a loss to locate value.



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