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hanktbd
Senior Contributor

Help me to understand price later offers by our Co-op

I have not done price later and likely will not due to the potential risk (of default) appears greater than the potential reward (a few cents per bushel reduced storage fee). What I am trying to figure out is, if the price goes up between delivery and sale, who is absorbs that loss??

 

1.   The Co-op

 

2.   Some unidentified CBOT speculator.

 

3.   The end user.

or

4.   Some combination of the above.

 

Thinking the Co-op and the end users are trying to unload the risk through the CBOT, but how is the basis risk hedged on their part.

 

TIA for any help explaining this.

 

 

 

 

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4 Replies
Palouser
Senior Advisor

Re: Help me to understand price later offers by our Co-op

Our area may not be typical but DP (delayed pricing) usually involves passing title. You no longer legally own the grain to be priced later by you and the coop and they can transport it to the market and sell. I have only done this once, just recently, to avoid some costs to make room for more grain in my bins. I know the coop very well and know it to be very well run w/ no risks taken on. I would NEVER do it with a private company (maybe Cargill or somebody like that but they are not available here). Here. IF the coop here went broke I would be at the end of the line for recovery and would not even qualify for the state grain indemnity program. I believe the coop takes a futures position.

 

The contract should be ONLY with the business and no other interests signing.

 

If the price of the commodity goes up after delivery your contract should read that you can walk in any day and get the price posted on the board of the establishment. Here, the common practice is free storage with the right to the day's price any day you walk in. There will probably be a time limit put on the contract by which time you need to sell. Mine was a year.

 

 

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c-x-1
Veteran Advisor

Re: Help me to understand price later offers by our Co-op

hanktbd,

 

overall market picture, is this simply one method/tactic the "down the line users" employ to get the product out of producers hands sooner rather than later?

 

if so, consider implications for yourself - cutting to the quick, what does their offer ACTUALLY communicate? Lure/bait?

 

just a thought.

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hanktbd
Senior Contributor

Re: Help me to understand price later offers by our Co-op

Palouser,

 

Looks like our DP is similar except the storage discount varies according to how bad they want the grain. Our Co-op is rock solid financially and the manager has been there many years and quite conservative. However, as you say in the rare event there was a problem, I could prolly kiss my money goodbye.

 

CX,

 

That leads to my other concern that having given the end user the grain to use, we as farmers have lost some marketing leverage. Fact is though, that my personal leverage in that regard is about the same as a single microbe in a quarter section of dirt. And organizing a collective grower response to gain marketing leverage would likely make herding cats look easy by comparison. 

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c-x-1
Veteran Advisor

Re: Help me to understand price later offers by our Co-op

understood, except for the "WHY  have farmers lost mktg leverage?" --what steps led to it? 

 

took a few days to build Rome.

 

on the other hand, if you don't HAVE to surrender your product yet (you, not collectively), don't. The co-op has told u how valuable it is?

 

......more thoughts. thx

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