|
S Illinois | The end user and grain elevator are not that close. End users and grain originators are not any more buddy buddy than you would be with your elevator. The elevator wants to make margin on both sides of the sale to an end user and not just from the buy side.
End users of any volume have bids just like the elevator only theirs is just a basis value. So a merchandiser at an elevator is asking multiple end users constantly what their bid is and the elevator is continually trying to make the end user bid higher. If the end user has needs for grain they will start upping their bid until the elevator sells a basis value they think they can make money with.
Once that basis is sold by the elevator they begin working on finding the physical bushels to fill that. Those can come from in house previously bought bushels, new purchases from famers or their least favorite, DP sourced bushels. Raising basis is self explanatory but the basis strength does have its limits as no elevator wants a negative margin in a sale. So if basis gains doesn’t get enough bought elevators can turn to DP.
There is a downside to DP from an elevator’s perspective. Like for a farmer DP mean an elevators basis is wide open. So that elevator is buying grain at an unspecified basis and basis is the bread and butter of an elevator. So if the elevator guesses wrong and regional basis goes higher and they still need to buy more grain to fill their contract with the end user, they just lost big time because now the grain on DP has a higher basis too.
This last part is why elevators don’t just offer free DP constantly to get all that “cheap basis” bought. Elevators have less basis sway than many think. Basis especially in the high production areas is very competitive and no one elevator or company controls basis.
| |
|
DP from end user perspective
