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Blacksandfarmer
Veteran Advisor

Basis contracts

Does anybody here use basis contracts? I normally forward sell some of my production that will be sold in the fall, but have never made a basis contract. What are your experiences, good or bad? Thanks

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5 Replies
rawhide
Advisor

Re: Basis contracts

if you sell them grain and the futures goes down then you owe them the margin money

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rayjenkins
Veteran Advisor

Re: Basis contracts

Basis contracts are just another tool in the marketing toobox, depending on the circumsances.

 

Right now they can be attractive if basis is narrow for this time of year. For instance, our current bid is 5 over December, while a more normal bid would be 20 to 30 under.....You need to compare the cost of storing corn at an elevator to storing it "on paper" with the basis contract.....in our market, a lot of folks are finding that basis contracts are a good alternative, especially since we still operating on 75% of normal moisture discount schedule..

 

Most grain businesses will advance 65-80% of the value of the corn after delivery......if the advance is 30%, there is still $1.30+ of equity in the corn.....it will be a long time before you might be asked to put equity in......these contracts do NOT act like futures contracts where a small move in futures might trigger a request for equity....

 

Ray J

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p-oed Farmer
Senior Contributor

Re: Basis contracts

Blacksand..... Just be aware that a +.05 the Dec basis is automatically -.07 the march..... If you want to stay with the contract after the 1st of Dec...... Carry helps futures position but goes against basis the = amt...... p-oed

 

PS..... One should go with the month that you think you might be selling in from the get go as most will charge as much as .02 to roll each time you roll......Good luck

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farmerguy89
Advisor

Re: Basis contracts

Storage is 0.07 here. If basis is good do basis contract
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kyjlong
Frequent Contributor

Re: Basis contracts

Rawhide, are you refering to a 'hedge-to-arrive" contract? I believe a basis contract only involves the basis, not the board side of the equation. normally if one delivers on a 'hedge-to-arrive', as opposed to rolling to a later date, you just get what you contracted but you ldon't have to pay 'boot'. Rolling a contract can incure additional charges.

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