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07-03-2016 11:02 PM
Well folks, i've got some time to look at the markets...and i'm just plain sick...
we are now below loan price for wheat in our area...basis over a dollar......now, i want to tell you this tho...there
are no more piles on the ground than usual...those press shots of piling grain on the ground is nothing more than
"window dressing"...it does not mean that there is an over supply, but many elevators are deciding to do that
(local elevator got cought with their pants down.....they opened it up and it all had an ordor)
the question first of all is the cme price....the second is the almost historic basis......
now here is where things get interesting.......and our educated peanut gallery can maybe help here.
when you sell grain (in this case wheat)....they always offset it on the boards....
they also ship it to a terminal, and have cme contracts on it......our local goes to an area terminal...to kc and also
has the ability to do unit train loading, so even the gulf price, which is usually the best....
now....according to the cme rulebook....the kc terminals are at par.....the local terminals are at 12 cents under....
since they sold a contract to offset it, they have the papers since they have moved it out to a warehouse, or they
are a warehouse themselves........
so, figuring cost to terminal....15 to 20 cents....unloading fee of 8 cents......so we see a cost of 40 cents...
yet, our basis is over $1 !!!
they tell me that "oh its due to too much wheat"...oh, but you just offset it on the board, the amount of wheat does
nobody, as of yet will not tell me why, but say it does not work that way......but i've talked to several national
brokers, and this exact same thing occuars up and down the river every day in corn and beans.
there, the terminals are stated in the cme contract, and the amount of basis, and you can sell the contract, haul
it to the terminal there, take out the stated basis....none of this $1 to $ 1,20 basis
understand the basis account for 35 to 40 percent of the cash price !!!!!
ok SUCCESSFUL FARMING experts.....explain all of the above to me why to stuff is soo out of whack.........and what do we
do.......to be SUCCESSFUL FARMERS..........
alot of us out here are eager to read your answer and advice.
07-04-2016 08:25 AM
I`m the least qualified person to answer this, but what we see with corn and beans many times is the board may rally, but the basis widens to dry up and cash price gains. Now, I`m a lowly price taker and don`t ask too many questions, but what I`ve thought in those cases is the board got what`s felt as too exuberant and the buyers use basis as a "governor" to make sure they don`t get flooded with grain
Those trading on the board in their penthouse overlooking Central Park, don`t have the be burdened with the logistics of handling the physical extra grain coming to market, they can just click on the sell button and not get dirty. Those that actually get dirty aren`t so anxious to handle all the extra physical, so they tap the brakes.
07-04-2016 09:31 AM
The definition of basis is cash price minus futures price. If corn is $3.50 at the local elevator and $4 on the CME, we say the basis is -$0,50, usually expressed as "50 cents under the board" when in fact it is that the board is 50 cents over the cash.
Broadcasters can't tell us very well that the cash in Tiffin is 3.50 and in Conroy is 3.52 and in Cedar Rapids is 3.48 and in Washington is 3.47 and so on, but they can say the CME is $4, short and sweet. We end up following the bouncing ball instead of focusing on our marketing area. Human and we all do it.
We've all seen all kinds of excuses for why the cash is not equal to the futures. They include insurance, storage, handling, transportation, risk and so forth but what is not so easy to pin down, as you point out, is demand and supply. Another way of saying this is when you ask why the board is $4 when the cash is $3.50 someone will give a complicated, long-winded and probably wrong solution and another guy will say, "I don't care, but I'll give you $3.50 for corn". We may not like that last answer but it might be the most honest and accurate.
07-04-2016 09:40 AM
Back in the day, ca. 2006-8ish we were having our own version of a DotCom boom where everybody was going to get rich.
At the time, pretty well nigh impossible to get any takers here in regards to position limits, the privitization of the CME, the Chi wheat basis debacle etc.
The camel has since walked away with the tent on his back, what do you want me to do about it now?
07-04-2016 09:42 AM
Basis facilitates the movement of grain locally. it gets bigger when the buyer does not have a place to go with the grain or has excess inventory. And if the basis is positive the market needs grain even more locally than the market has recognized nationally...woops internationally...
Because we have a market that is fixated on the international supply and demand. Basis is goning to be a much bigger factor than ever before.
We might see times when basis is half the price.... good or bad...
07-04-2016 09:59 AM
This will usher in the age of Contract Production in the major commodities in the midwest. Protecting the larger share of bushels by fewer farms and speeding the end of small farm agricuulture in corn, beans, and wheat.
No reason this portion of the economy will be any different than any other.
Who will be on the list of "prefered corn producers"--------------- similar to prefered drug suppliers in obama care....
When you steal the drug usage of those above 65 from the local pharmacy and give it to the national, government approved, suppliers, how long will the local survive?
07-04-2016 12:15 PM
I think 'da boyz here would prefer that you have one of those tap spigots, like the syrup cookers use on maple trees, installed on your person so that you could bleed when the NL project requires it. Keep it up on the closet shelf with the straw hat, the 3 tine pitchfork and the bibs.
07-04-2016 01:33 PM
Similar to my metaphor of farmers as the cows in the neoliberal dairy.
The good news is that the people who run the dairy need to make sure that the cows get fed an adequate Least Cost Ration in order to optimize profits; the bad news is that since they stepped up to a BST augmented 3X regime, the cull rate is now rising.
07-04-2016 02:45 PM
Delivery is a way to settle a contract. There are set
Delivery locations. At each location, there is a stated
Basis. You can be charged a stated unload fee per
Bu. And you can be charged storage, but at a rate
No more stated in contract. A warehouse recipient will
Satisfies the delivery at the said terminal. A licence warehouse can not refuse you a warehouse recipient
For grain received.
You could haul your grain..
.get a receipt....sell on the board.
And only suffer the contract stated basis, unload
Fee and storage.
Two national brokers said it is legal and done
Quite often in corn and beans....but for some
Reason the Ks terminals say no, it can not work and
Will not work.
Just read your cme handbook
07-04-2016 02:56 PM
On basis...an old elevator owner/operator told
Me once at almost always grains basis becomes wide
At and a little after harvest....reason....I answered
Due to over supply....he said wrong....that is figured
Into the board of trade.
The real reason is that more grain is sold at or near
Harvest...more than you think. First alot of people
Put bills due at harvest. The second, and biggest,
Most landlords want their money...most don't do
Marketing...and most don't want to loose any more
To storage. He said wait a few months, it will be