|
SC Iowa | as has been stated a couple of times in this thread, basis risk is the most difficult part of the equation to manage when forward contracting and you end up without enough bushels to cover forward contracts....
think of the situation we are in today.....basis is a bit "wide and sloppy" because of the supply of old crop corn pressing on the market, and that is being reflected in soft new crop basis bids as well........so what happens if we end up with a weather market rally in late summer, enough to reduce the excess supply, and those fall basis bids go from -50Z to -5Z as everyone in the grain biz scrambles for ownership??
So, a couple of things to consider if forward contracting in current conditions:
1) have a good understanding of how the markets you sell into handle contract shortfalls.....if you write HTA's will they let your roll to the next crop year while eating the inverse?? How do they define "replacement" when calculating buyout charges??
2) you may want to consider using HTA's on forward contracts vs. cash contracts that lock in a basis....just another way to "manage risk", especially if you have concerns about size of crop you may be growing | |
|
"Sell up to your bushel guarantee"
