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Forward Contracting Grain
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dave morgan
Posted 6/16/2007 22:47 (#163269 - in reply to #163079)
Subject: RE: You have something to consider=this is getting good!


Somerville, Indiana
A contract to deliver a bushel of corn is exactly the same as a contract to build a house according to blue print. If lumber goes up the buyer is protected, same with other materials.

That is why a farmer would contract for forward delivery, he signs a contract that guarantees him the price that he is satisfied with at the time of signing=price is stated on the contract. If he runs out of 6$ corn the elevator lets him 'wash the contract clear', as they merely fill their obligation with 1$ corn. However if farmer contracts for 1$/bu, runs short at delivery, he is obligated to make up the 5$ that the elevator 'loses' by selling the farmer's contract to their buyer. Usually a forward contract works well for both the elevator and the farmer. In one big way, it lets the farmer sell a % of his crop at a profit if he watches the market and pulls the trigger when it gets to his profit level. The same exact deal comes when a farmer leaves a bid at the elevator to sell X # bu of grain for X$ and assures the farmer that he doesn't miss the price as it may rise 25 cents/bu in either overnight or day trade and we never know it unless we watch the board all day.

There are a lot of days the market moves a quarter up during trading hours and we never know it. That quarter is a lot more important at 2.41 than at 4.05 but it still amounts to $75,000 on a 300,000 bu crop.


There don't seem to be many, leastwise as short as my chain is I don't get away enough to see many, farmers who take advantage of forward contract loops or holes. But never underestimate the vulgarity of a person who we share an inheritance or get a divorce from. It seems to bring out the nasty in most partys involved to the point of being absolutely totaly deaf to the outside world.

Edited by dave morgan 6/16/2007 22:51
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