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Leesburg, Ohio | There are really two components that make up the $4.34 cash price you were quoted today:
1) The Chicago Board of Trade Futures price (closed at $4.78 today)
2) The local "Basis" bid at your elevator, which is the difference between the Chicago Futures price and your cash bid. In this case ($4.78-$4.34= .44) so the basis is -$.44 or "44 under".
In a basis contract, you would be committing to deliver an agreed amount of bushels at an agreed upon time (now or some future period), at an agreed upon basis level, with the futures price NOT set. So you would be locking in the basis portion of the price, and leaving the futures portion open to change, either up or down. Usually you would be paid on delivery for a percentage (maybe 25%) of the bushels delivered, and you would receive the balance when you set the futures portion of your price. You could enter a basis contract for delivery now or at a later date, and the basis bid would be "under" the Chicago Futures contract month appropriate for you delivery period.
You would use a basis contract when you were satisfied with your local basis (study historical local basis charts) but not satisfied with the futures price. You could also do the same thing by selling cash and buying futures. Either way, you would be speculating on an increase in the futures price. With unpriced grain on DP or storage, or in the bin, or in the field, you are speculating on both the basis and futures.
I am not particularly a fan of DP, or "Delayed Price." When using DP, you are giving up legal ownership of your grain, and paying to do so. The elevator can move your grain on thru the marketing chain, fill their contracts with it, thereby satisfying demand for the grain, while you are still hoping for increased prices. If you don't have storage, it does provide an alternative to selling at harvest, but I'd rather try to price some ahead for fall delivery.
Hope this helps.
Ken | |
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Basis contract
