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Senior Advisor

Re: Floor Talk October 1

Loading terminals make their money based on turn-over rate. It's not a place for long term storage. In this environment I think a valid argument can be made that corn should be stored up country. #1 choice should be home storage simply because you can always pull extra money as companies compete for volume on grain that isn't under their control. Once they own and can move it you lose that margin. Passing title is a risk also. Less so with multinationals but, still a risk IMO. Take a look at some of the financial blow ups that some never expected. You probably wouldn't qualify for indemnities for loss or bankruptcy in most states. 

 

DP may not be a worthwhile strategy if there are other reasonable options. Shipping direct has appeal but, might not be as financially efficient as the theory suggests.

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Senior Advisor

Re: Floor Talk October 1

PS - if you have to pay storage too? Seems like a very poor strategy. Build some bins and make more money.

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Highlighted

Re: Floor Talk October 1

I actually mispoke, in part.

 

What I said is very true of paid warehouse storage- elevator gets a flat fee and is 100% on the hook for quality losses.

 

Not so much with DP necessarily as the elevator can move the corn anytime they'd like and the farmer's interest is paper only (state grain indemnity funds or not, I suppose that a new generation of farmers will learn the pitfalls of that someday).

 

But while the elevator's gain is usually more limited than taking ownership and the basis exposure if they move unpriced grain can get tricky, it is still a bit different than what I represented.

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Senior Advisor

In our region …..

.... farmers with a DP agreement no longer qualify for indemnity funds because title for the grain has passed.If the outfit goes broke the farmer w/ DP is at the end of the line for getting anything for assets remaining. 

 

A company SHOULD be either hedging or maintaining grain stocks somewhere but, I don't think they are required to for DP contracts. An audit requires stocks for grain where title has not passed. As far as I can tell, and willing for an expert to explain more but, DP grain sold by the company means risk. If there is a significant portion of DP grain going through the establishment then if the  grain market shoots up one better be prepared to get their money ASAP, because, a lot of others will be pricing at the sanme time. 

 

The hook here is 'free storage' which is a misnomer. There's no storage because you don't own it anymore. Our storage costs are half yours.

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Advisor

Re: In our region …..

In my part of iowa, dp means deferred payment. the grain is sold and the check comes jan. 2. You are right about the elevator going broke. We dp er's are all unsecured creditors. If my coop goes broke(and consequently i don't get my deffered income), so will i.

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Veteran Contributor

Re: Floor Talk October 1

I put a large amount of wheat on dp this summer...you can see how well thats working out! dumbest thing I have ever done.

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Veteran Contributor

Re: Floor Talk October 1

How much has wheat dropped since you DP it?

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Veteran Contributor

Re: Floor Talk October 1

dafeeder, its about dead even right now....cost me .16 cents so far, there was a great oppurtunity around july 20th that I didnt take advantage of....guess that would be the dumb part of this whole thing lol. really thought we would pick up some big wheat business by now.

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Senior Advisor

Re: As opposed to price later contracts..

Where the farmer turns over title to the grain and agrees to establish a price at some later date.

 

They may have different definitions in different areas.

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Veteran Contributor

Re: Floor Talk October 1

 

If 16 cents is the dumbest marketing mistake you ever made, then you should start a marketing business.

 

Just saying

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