|
Fond du lac | Lots of things to considered
Do you your own storage(still has a cost)?
What is your storage cost at elevator?
Do you borrow money?
What is the interest rate on that borrow money?
Can you invest the money from a crop sale and earn some interest short term?
When are you going to be in need of cash flow?
Figure these questions out, then try to figure out these question for the rest of your elevators clients, and then you can figure out which marketing risks to take.
Best time to use a basis contract for us was in the spring of 2021. Prices were low do to the trade war and the short crop of 2019 was finally be realized. Throw in Covid. Ethanol plants needed to get corn out of farmers hand so basis was good. But demand was picking up at the same time and the futures rallied into July. So lock in the basis and let the market rally. Someone may correct the years it could have been spring of 2020 this happen. The last couple of years HTAs worked better. Good market prices for long time. Can lock in a future price and keep rolling. I don’t really like rolling so I just do them for May, June and July ( the only month locally they narrow basis. With the basis our elevator are offering in fall it really couldn’t widen much. (There isn’t alot of on farm storage here, so the elevator know they are getting all of crop in the fall. Sales are also made to pay down line of credit used for prepay of nexts years inputs fairly fast. Put extra cash into something earning interest until cash flow is needed. If interest drops to pre covid levels you can take more risks on grain sales. We can store almost all or crops.
Know you’re historic basis level by month at your elevator. Probably just need to ask nicely. Know when they typically like to change contract month for their cash price. Once you start a marketing pattern stick with it so you don’t get caught on the wrong side in set consectutive years. A nice average is better then trying to hit all the highs and missing. | |
|
Basis contract for dummies
