Sunday we were out to eat at a local restaurant. We bumped into a grain buyer from the local elevator. He mentioned they were trying to get a train filled, and asked if we had any corn to sell. We responded in the affirmative. He told us he would call Monday morning.
We went back and forth several times Monday trying to get together on bushels and a basis for a quick ship by close of business Wednesday. We arrived at both. The problem came when we wanted to put it on a basis contract.
A basis contract is when you set the basis, deliver the grain, but leave the futures price open to be established at a later date. You are at risk for a downward move in the market, however you can gain when prices rise. When you set the futures, you receive a settlement for the futures price plus the basis less what was advanced. You would typically enter into a basis contract when you think the market is at a low, or will move higher. The last few years basis contracts haven't been very popular due to the value in the market.
The issue was the advance payment -- per company policy, they would only advance 60%. In the past the elevators would advance 80% of the price on the day the product crossed the scale, however during the price run up a few years ago many elevators lowered percentage to reduce risk of the farmer becoming upside if the market went lower.
Some elevators have since brought the advance back up, while others have remained low. This elevator wouldn't negotiate.
Do you realize that 60% of a $3.80 cash price is $2.28? Has anyone been thinking that the market may go to $2? I haven't heard that!
There is virtually no risk for the elevator in advancing 75-80%, plus they would have been closer to filling the train! Before I take a 60% advanced, I'll seal the corn and take the FSA loan at $2.01!
Trying to get some grain moved this week was a frustrating situation. The flip side is, we've had time to get a lot of work done this week since we weren't sitting on a truck seat!
The opinions of Kyle Stackhouse are not necessarily those of Farm Futures or the Penton Farm Progress Group.