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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →A farmer who buys a put can establish a floor for the futures part of a grain sale while keeping the opportunity to benefit if prices rise. The trade-off changes if the farmer also sells a call: that call can help pay for the put, but it caps futures upside above its strike and can lead to assignment and margin exposure.
What a bought put does for a grain seller
A put option gives its buyer the right, but not the obligation, to sell the underlying futures contract at a stated strike price. For a producer, buying a put can protect against falling futures prices without requiring the producer to sell the crop immediately. If futures rise, the producer can let the put expire and market the grain at the higher price, subject to basis changes and the premium already paid.
This is a floor on the futures component—not a guaranteed cash price. The cash price a farmer ultimately receives also depends on local basis and the option premium. CME Group explains the mechanics in its put-option floor guide.
How a fence differs from buying a put alone
A fence, also called a collar in some contexts, combines a purchased put with a sold call. The call premium offsets some of the put’s cost, but the seller takes on an obligation: if the call is exercised and the seller is assigned, the seller may hold a short futures position at the call’s strike. The sold call limits the futures hedge’s upside above that strike; it does not leave the topside open without limit.
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CME Group describes the put strike as the lower end and the sold-call strike as the upper end of a grain seller’s price range in its selling-price-range guide.
| Feature | Bought put only | Put-and-call fence |
|---|---|---|
| Initial option cost | Put premium paid | Put premium less call premium received |
| Downside protection | Put can establish a futures floor at its strike, with premium and basis affecting the effective cash result | Put provides the floor; the call does not remove that protection |
| Futures upside | Retained above the put strike, while the put can expire worthless | Limited above the sold-call strike |
| Assignment and margin | No short-call assignment exposure from this structure | Assignment may create a short futures position and margin calls |
What happens at expiration: the 2022 corn illustration
Bryan Doherty’s Agriculture.com article, published February 18, 2022, used a hypothetical December corn position with futures at $6, a $6 put costing 50 cents, and a $7 call sold for 25 cents. These are historical example inputs, not current prices or offers. The examples below follow the article’s stated results and exclude commissions and fees.
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| December futures at expiration | Option outcome in the example | Article’s stated net futures result |
|---|---|---|
| $5 | The $6 put is worth $1; the $7 call expires worthless. | $5.75 |
| $7 | Both options expire worthless. | 25-cent net premium cost |
| $7.25 | The short call is exercised; the producer is assigned a short December futures position at $7. | $6.75 |
The article notes that the cash corn’s value changes separately from the options. The figures therefore should not be read as a guaranteed cash sale price: basis, the timing of the crop sale, and transaction costs affect the realized result.
When the trade-off may matter
A fence may appeal to a producer who wants downside protection but is willing to give up futures gains above a chosen call strike in exchange for lowering the net premium. It is not simply a cheaper version of an uncapped put. The short call creates a separate obligation and can require the producer to meet margin calls promptly.
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Before choosing a structure, compare the put premium and strike, the call premium and strike, option expiration against the crop-marketing calendar, expected basis, and the farm’s ability to manage a short futures position and margin requirements. The strategy should be considered in the context of both the hedge and the unpriced cash grain. Doherty, a senior market advisor and vice president of brokerage solutions at Total Farm Marketing, advised producers to consult a trusted adviser.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Source and date context
Doherty’s February 18, 2022 Agriculture.com article said new-crop corn futures were approaching $6 and old-crop futures were near $6.50 at that time. Those were market observations from 2022, not current quotes. The article’s central distinction remains specific: a bought put leaves the futures upside open; adding a sold call exchanges some of that upside for call premium.
Read the original Agriculture.com article or the Total Farm Marketing reprint for the source example.
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