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Minnesota | "Perhaps this needs its own thread, but here goes. HTA's are making me nervous right now (probably because of my own ignorance). What happens to your basis if the price explodes? Here, if (board) price blows up, basis usually goes to pieces, so the HTA becomes a bad trap in that situation. I know (and give a lot of weight to) guys like RayJ have said that this year, basis may do all the heavy lifting, but I'm just curious as to others thoughts? What happens if corn starts to get real short (and wheat crop continues to deteriorate), basis will no longer be doing the work, the board will, correct? "
I look at the futures (board) price as just that: a guess at what the price will be in the future based on estimated future weather, demand, supply etc. Basis to me reflects reality of what is going on. Right now, nearby basis is tight reflecting strong demand and limited supply (or unwilling sellers). If corn is as short as some say, basis may go positive despite what futures do. We may have excellent planting conditions this spring, huge supply coming, futures going down but basis going positive to "ration" old crop supply. Now your gain is in basis on the HTA written on old crop in the bin, not likely on carry as the market needs corn now. Most years we want to pickup carry and basis with our HTA's but we are in a different marketing environment now. So short answer: basis will do the rationing in short crop years. JMHO | |
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Hedge to arrive
