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New ? on selling grain

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Topic: New ? on selling grain

Posted By: Sandknob
Subject: New ? on selling grain
Date Posted: 03 Dec 2009 at 10:31pm

Okay,

I get the understanding that the selling on the futures is quite a ways away from where I should be looking. I also get the impression that cash contracting is a better way for me to go. What are your opinions on this and can somebody explain it.

http://www.allischalmers.com/new/forum/forum_posts.asp?TID=4547&KW=futures&title=can-someone-explain-buying-on-futures - http://www.allischalmers.com/new/forum/forum_posts.asp?TID=4547&KW=futures&title=can-someone-explain-buying-on-futures

Thanks for any help

Adam

Replies:

Posted By: John (C-IL)
Date Posted: 04 Dec 2009 at 6:39am

Pretty simple. If you expect to have a crop or have crop stored you can cash contract with the elevator to deliver during a certain time period. You tell them how many bushels that you want to sell and they will tell you the price for that delivery period.

I like to have half of my new crop cash contracted before harvest. The rest I sell or store based on my income/expense situation over the next 6 months. Generally I am all sold out by the end of february.

The things that you need to consider are the additional drop charge for anything not sold across the scale, additional drying and shrink charges for storage and the storage charges. Otherwise all of the marketing advise that applies to the futures applies to cash marketing. The other caveat to forward contracting is that you must deliver or cover the hedging costs incurred by the elevator, but that gets complicated and you need to cover that with your local elevator as everyone's policies differ.

Posted By: Gerald J.
Date Posted: 04 Dec 2009 at 10:09am

Most times the cash prices you can contract in February through June (peaks most recently in February) are well above the cash prices at harvest, so you can cover the needs at harvest at the elevator or by buying from another farmer at or just above the elevator cash price. My nearest elevator charges 10 cents a bushel on corn above their cash price in that situation. So if I had sold corn for $4.11 Tuesday this week for Oct 10 delivery and did not have corn to deliver to cover the contract and the cash price was $3.55, I could get the contract covered for $3.65 for a profit of 56 cents a contracted bushel without having to grow any corn or handle any corn. Conversely if the lowest October price was $4.25, I would have to pay the elevator $4.35 to cover the contract and I would be out 24 cents a contracted bushel. That remote possibility keeps me from contracting 100,000 bushels at the February price.

Your elevator should have available a print out or a web page on grain policies that sets out these fees and possibilities. There are other things like price later and basis contracts that are biased a bit more in favor of the elevator.

Gerald J.

Posted By: Wil M (NEIA)
Date Posted: 04 Dec 2009 at 10:17am

Basically what John said and what I said about cash contracting in the previous post summarizes what you need to know. It is called forward cash contracting. You will agree to deliver a set amount of bushels for a set price at a set time. Since you have no storage, you will probably want to watch the new crop delivery time prices. Around this neck of the woods that is usually considered October for corn and beans.

Wil

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