SE IL | jbweston - 1/9/2017 08:46
Thanks for trying to straighten me out on this. I always appreciate your posts.
So....not sure if it was the abbreviations or my rookieishness, or what, but I did not follow your first and third sentences. And when you referenced hedger, are you referring to producer hedging, or commercial/end user hedging?
I'll try to explain in farmer terms. Pete's saying the buyer doesn't want to use July (n) because first notice day (FND) is at the end of June. July quits trading at mid month. If you were to use the n you would have to price it out by the 20th of June. It somewhat limits the sellers pricing horizon. But as long as you know that going in it will be ok. Just looking at 2016, you would have been forced to price before the peak of the summer rally. The other thing he said is that typically in a basis contract, when the futures is set is the same time that the seller wants to deliver. So you probably should use either use the dec (z) or sep (u) to set the basis against for greatest flexibility. But using July might get you a higher price if the front months increase faster than deferred (bull spreads). Hope this helps. |
Please help me understand the months used for basis bids
