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MN | This of course is the problem. Individual producers save a penny a month using DP vs Open Storage, but when all producers use DP it breaks the basis.
When you put grain on open storage, the merchandiser can’t sell that grain because you still have title. When elevators are offering “free DP” it’s because they think the basis is going to break and they want to sell it now and then after basis breaks buy it from you the producer for less. Now, individually you lose either way DP or STG in that scenario because basis gets worse and STG costs more so people keep using “free DP”
When it comes down to it, the elevator isn’t going to let you use their space for basis appreciation. Otherwise they’d stick their own grain in the space! So they offer the space at a premium to what can be gained in basis appreciation. If you want to pick up a basis gain generally you need to keep that grain in owned space.
If you’re goal is to capture futures appreciation , DP or STG are bad ways to do that. Write a basis contract or sell cash and get long the board (They are the same thing.)
When you start seeing “free DP” being offered it’s generally a good time to sell basis. No better marketing signal than that really. | |
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The worst thing you could do
