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S Illinois | Unorthodox that’s for sure but this is a whole lot better than your basis contract roll to Dec. strategy. Definitely not a huge money maker but an interesting thought.
Just so everyone knows this has little to do with DP other than being able to move the grain now. What you are basically recommending is selling the carry and waiting for basis to improve. Where this works is if one is very confident in basis trends in their area. So with a 34 cent carry, selling Dec means one needs to have a better basis against the Dec than whatever nearby is minus 34 cents.
So if one has say a +10K basis today, a producer gains in selling price if basis between now and the price by date is better than -24Z. Plausible maybe but we are talking minimal gains. The only other upside is one can move the grain now if quality is a concern and to make room for the new crop.
The downsides are: one can’t get any advance of payment on the bushels hauled, you could still have margin calls besides not having any access to money, basis doesn’t have to improve even at that low basis hurdle to clear, and this works less and less in a smaller end user market where basis bids don’t have to compete.
This strategy(minus the DP part and use July 24 instead of the Dec contract) is what should have been done 4-6 months ago or basically since harvest last fall. Unfortunately what you’re recommending is a little band aid on a bad situation. But sometimes any action is better than no action. If we would have a good crop coming this strategy would be better a lot better than waiting until Aug-Sept and selling straight cash. And no this doesn’t mean cash prices are going up because elevators “know something.” | |
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How to take advantage of free DP in a carry market - audio comments
