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SC Iowa | When looking at buyouts we split it into two parts....futures and basis...
determining difference between your hedge price and current value is the easy part....just look at cbot and calculate....
the basis is more difficult, especially this year......and basis is not covered by crop insurance..
Let's look at an example transaction
Farmer forward contracts corn for December delivery at $6.25......hedge price was 6.40 vs. December futures and basis was -15 to get to the 6.25 selling price...
Farmer calls and says I don't have the corn...what is buyout price??
Board is 7.20, so difference in futures is $1.20 per bushel
Replacement basis might be quoted at +30Z....so a difference of 45 cents between what he sold and what it takes to buy in the corn to replace his contract....
net/net, he will owe $1.65 per bushel to buy out the contract....
this is a tough year for both buyer and seller..
Ray J
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Am I the only one who fills my forward contracts if the market goes up?
