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East Central SD | As I stated before - I wouldn't expect to change someone's mind and my original post was about wondering how wide spread "free price later" was at this time, not trying to change opinions. Assuming you aren't trying to be a smart @$$ I'll give you a brief explanation...
Since I used my local ethanol plant in my original post I'll use that in my example...and I'm not picking on them - I like the plant and they are using a marketing tool that's really an advantage to them. Locally the end-users are the market, whether it's the ethanol plants or the soybean plants, most of the local grain stays in the area. Now, as the marketing year progresses you will generally see the basis improve after harvest. That is a reflection of the pipeline supplies being drawn down and the end-user raising their bid by narrowing the basis to get grain - either from farmers or elevators that have grain they OWN. That's a BIG difference between storing grain at the elevator and "price later" grain at the elevator - if it's stored grain the elevator has to keep those bushels in inventory, price later bushels they own and can sell and ship, even if the farmer hasn't priced it.
Now, back to the enduser. They HAVE to have bushels to process and when their inventory starts to get drawn down they have to bid accordingly to shake bushels loose - the basis is a reflection of how bad they do or don't need corn (or beans). If they don't want to narrow their basis to receive the bushels they need they open their "free price later" and they have lines of farmers waiting to unload. What are the odds of them tightening their basis with ample supplies of free grain? What are the odds of them tightening their basis if they have to encourage grain movement with their bid?
This grain may very well be processed and the ethanol & DDG's (or meal & oil) sold and long gone before they have to pay for the grain. There are some advantages (like hauling when you have time or eliminating quality issues) that may offset them using your grain and money free for a period of time but I would hope you can see how price later can negatively impact local basis.
Stored grain needs to be bid for (except for panic selling or "giving up" - and I've done both), price later grain does not. You may say that some time they'll have to raise their price to get you to sell... that's why they usually have a date it HAS to be priced by. When the deadline gets close do you actually think they have any reason to raise their bid for you? And remember - you are protected with a warehouse receipt on stored grain, not so with price later grain... a big deal? maybe/maybe not, but I stand by my statement that "free price later" gets grain moving without having to bid for it because they already own it without ever having to narrow the basis to get it.
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Ohhhh Boy....
