grain marketing few questons about fture pricing

Ok, I look out and see prices, good pices, for 2011,2012 grain. My local elevators do not do anything much over New crop 2010, some wont even do that. I listen to Agday, and I hear the advisors say things such as "lock in your basis", and "secure your 2011-2012 prices now", How is this managed? Is this some thing only huge farmers are able to to? Is he talking about stock markets purchases/sales and not actual contract and delivery of touchable grain? I still dont really understand the put/take stuff. I was thinking of buying some off farm corn from a neighbor that is thinking of selling at a cash price of $3.12(current local cash price avg), and buying an amount that I have contracted for N/C 10 @ $3.79. I know there has to be a better risk manageent other than contracting a percentage of what I expect to harvest, and riding the risk that rices dont skyrocket or hit rock bottom for the rest, or not having the corn to deliver for the contract, due to crop disaster. I know its all a risk, but the risk would be less, if I did a few things different wouldnt it? I am sure more people other than just me would benifit from any knowledge you guys would share.

Dave where are you located?

You have a terrible bases up there.

I can get about $3.85 picked upon my farm last I checked. We are about .42 under Chicago picked up at my farm. Trucking is .18 of that .42.

Where does the corn go from the local elevator?

I would think there would be money made with a little longer haul.

Thank you. You ask some very good questions that many of us want to know but are to proud to ask.

Gary, central MN, near St Cloud. CBOT july price right now is $4.38, closest pricing I can find is $3.61. Fall price is pretty wide gap as well

So exactly what are you asking? You talk about locking in cash prices (selling) for deferred delivery time frames but yet are thinking about buying cash corn from a neighbor and then buying corn to cover your new crop corn sold? What are you trying to do or protect?

Basically if you want to lock in 2011 or 2012 prices that you can sell at, you will need to use futures and set your basis at a later date. You would sell futures in your own hedge account and then have to pay any margin calls that may happen if prices rise. Better talk to your banker before doing that as you may have to pay large amounts of margin calls before you ultimately are able to set the basis and deliver on your cash corn. Any increase in futures prices will be offset by a higher cash price likewise any decrease in futures prices will cover an ultimate lower cash price. If futures go up you have to margin it and pay interests etc, if futures go down you receive margin money back. The huge run up in 2007 is why elevators will not offer anything out more than usually a year and that is because of the risk involved and the bankers are not willing to help finance margin calls on potential future income with the interest expense etc occuring in the nearby time frame. Personally I would not listen to Ag Day and some of the so called experts. They are book smart but practicality dumb. In other words they don't understand how the real world works. I would however, recommend making some new crop corn and bean sales to cover your input costs and maybe a little more for this coming year. As to 2011 and 2012, there is a lot of weather, corn useage etc to happen between now and then.

Wil

Basis has always been poor- we"re too far from Chicago and New Orleans, except for the Duluth (to Europe) port. That"s one reason why farmer-owned ethanol coops took off here, to provide another end-user, keeping the margin here. Same reason why MN has always been a leader in forming ag coops- most of any state in the nation. Same reason why Cargill, Pillsbury, and others came from here- they"ve been able to screw the MNDak farmers for over a century due to a lack of competition. We"re typically 40 cents under Chicago- we pay the freight.

I bought some corn a while back from a local guy for what he was getting for it at the feed mill- about 40 cents over Chicago. I'm expanding the hog and poultry side of my operation so I guess I need to start growing more of my own feed grain. Right now almost all of our corn is chopped for silage.

Correct me if I'm wrong here, but I always thought most small farmers (qtr section and less) were out of the futures market because they use 5000 bushel minimum increments. Have a bad harvest and you can't cover it.

Don't forget about storage costs at either elevator or farm. Farm storage has to be stayed on top of or bugs and moisture may ruin it. Then you are SOL.

Buying farm stored grain from someone else has problems as well since you don't know the moisture, weight, protein, and other problems causing dockage. It eventually has to be sold through an elevator and it may be a big shock to your profits when they dock it 10 or 20 cents a bushel cause of weeds or protein or low test weight or whatever.

Is that farmer going to store it and fumigate it for free? If it were me, I'd lock in the price the farmer gets by hauling it to the elevator and storing it there depending upon their storage costs which you have to build in. If he wants the money now then he pay the hauling. There is no downside for him because if he wanted to sell now to pay his bills he would have to pay the freight plus settle on what the elevator will pay after dockage. You should pay him no more. You get stuck with his possibly bad grain plus pay the freight for hauling later. Good deal for him.

Until the grain hits the scale at the elevator, you really have no way of knowing what his bushel count is anyway and you could end up getting shorted at a few bucks a bushel.

If you really have a bunch of cash you want to invest in grain, then buy it direct from the elevator and you know what you have.

I don't follow corn but around here but the basis for our elevator who has the monopoly has gone from 44 cents to 75 cents on wheat from KCBoT. Haven't checked it in a couple months though.

Let the buyer beware as there are a lot of risks. You may have to up the insurance on any forward contracted crops to protect you. More cost and less profit than you think.

Some of the bigger farmers around here with 50 thousand bushels and more to play with will forward contract some to lock in enough profits to cover costs of production.

Good luck.

On New Year's Eve we went bowling with some friends. Turns out the head outdoor fella at the grain elevator was also bowling. We chatted about the difficult harvest, and he said can you believe, yesterday (last day of 2009) there were 7 trucks lined up when I came to open. They were coming feom Foley. The basis is so bad up there, they are trucking down to here. Its so cold, I don't want to get the augers & legs going that early, takes forever to knock the ice out....

'Here' is 100 miles south by New Ulm.

http://www.hanskaco.com/

--->Paul

Usually, futures positions taken on the board are generally offset before, or at maturity, so delivery of the actual, tangible commodity never takes place. It is only required that your position is offset, i.e, if you sold one corn contract, then you must buy one corn contract before maturity of your position. 99% of futures positions (on the board) are never settled by physical delivery. Delivery terms are usually quite user unfriendly, and involve delivery to a terminal or port. This is usually very impractical to the average producer. The 5000 bu contact only applies to the Board of Trade positions, so you don"t necessarily have to have 5000 bu to buy or sell 1 corn or SB contract. A majority of buyers and sellers of grain contracts are Chicago traders, who have never set foot on a farm. Forward-selling to the local elevator requires actual delivery of the commodity. There is no minimum amount to price when you spot forward-sell.

Iowa Farmer

Dave If you call me at 989 413 5684 I will try to explain it to you as best I can. It will be the best way as it takes volumes to try to type it and lots of experience. I learned a lot by talking to one of the buyers at The Andersons in Toledo OH.
You should have several options for sales. They are as follows.
Forward contract
Hedge to arrive
Basis
Cash
and of course the Hedge as the brokers like to get you to do. ( Merrill Lynch used to be one of them).
Options
now the options is the one I know the least about . That is the buying of Puts and Calls, one has much more risk than the other one. I think that is the Calls ,it has to do with whom is the underwriter of the contract, ( another words as I understand it the guy with the risk).
Basis is done when you think difference between cash and the CBOT is as close as it will get and the CBOT has room or will go up. Or cash will drop off.
Hedge to Arrive ,Is for when the CBOT is high and the basis is wide and you think the CBOT will drop and basis is not going to change much or narrow( get closer).
Cash is of course when you just simply deliver at the market for whatever the going price is that day.
Forward Contract is just that a contract to deliver a predetermined quantity at a specified price at a defined time.
Now I haven"t done any of these in years so some of this has changed I"m sure and make no claims to your or anybodies success or failure from this information. Yes of course the disclaimer. LOL