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Honored Advisor

Ray Jenkins video

Just heard about this on WHO radio Big Show. Ray is hooked up with the Farm Bureau, Iowa State in the Iowa Commodity Challenge.  Good job Ray!

 

http://www.extension.iastate.edu/agdm/info/icc.html  

 

 

the video:  Working with your grain merchandiser

 

https://vimeo.com/189645849

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11 Replies
Veteran Advisor

Re: Ray Jenkins video

Very interesting.  Thanks for the reference.

 

Mention was made of separating basis decision from price decisions.  I'd like Ray or anyone to explore that a little more.  I'm not sure I have wrapped my mind around why that is important.  It would seem to me that for this to be important, one would have to make more money or incur less risk by splitting the two decisions.

 

Anyone pile on this topic?

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Honored Advisor

Re: Ray Jenkins video

Jim, I`ve never done one of those "basis contracts" they talk about, I wonder what is the catch beyond it getting narrower than what you contracted for.  Is it a way for the buyer to have your grain captured?   It just seems to me that in the summer we go a week without rain and the forecast is dry, you can get rallies that blow the pennies of basis out of the water.   And if you get weather related rallies, the basis improves along with the futures price.  I supose if you`re in a doldrum market and you lock in 40¢ basis and in the fall it goes to 80¢, that extra 40¢ is the best you can hope to do.   But just my comments I`m sure gives away how naive that i am on the subject.

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Esteemed Advisor

Re: Ray Jenkins video

Just a quick example, last year, NC indiana.

 

November 10th harvest complete, everything weighed, know exactly how many bushels we have to deal with, bins reasonably full.

Futures prices reasonably depressed by big crop out west, weak crop in our area due to flooding.

Basis on Dec 1st was 40 OVER the futures price locally for June shipment. We fixed basis at 40 over.

Stored the corn till June, unpriced.

Corn futures price rallied to above 4.00, not being perfect I screwed up and locked futures price on some at 4.00 and some at 4.10.

Net cash price for us was 4.40 and 4.50. 

I did NOT do this on all the crop unfortunately, too conservative or too stupid I guess.

 

Oh, the rest of the story, Basis at delivery in June was 3 UNDER. Yes, that is right, a 43 cent decline in basis. Cash price at delivery would of been 3.96 and 4.06 using our futures pricing decision. 

 

Net gain of seperating the basis and futures pricing decision as Ray teaches, was 43 cents.

 

Of course, you have to have bins, and scales too know what is in them, and operating capital in place to store 8 months, and the mental discipline to think like Big C. 

 

It seems apparent that to survive in a commodity business you will need to be able to manage this way. Pretty simple really, deliver when the buyer wants you too, store when they do not. Obviously, since the future is not a known, mistakes will be made, but on the average, it is a pretty big competitive advantage. 

 

Another example, we dry the corn for about 1 cent per point less than Big C charges locally. Over 20 years on average, we have to dry 5 points, so 5 cents a bushel savings, times 600,000 a year, so $30,000 a year. You might say that won't pay for the dryer. You would be wrong, paying for the dryer was already in the cost number. So, $30,000 a year times 20 years, $600,000 equity difference. No secrets, no guessing, just block and tackle business.

Honored Advisor

Re: Ray Jenkins video

Time,  That is an excellent description of what grain bins can do for you.   Of course, there is also the time savings of not waiting in line at the local elevator.    

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Honored Advisor

Re: Ray Jenkins video

Alot of this must be a "here thing" around here bean basis has been 60-70¢ under and corn 40-45¢ under for a long long time, not fluctuating much at all, maybe a dime better at a feed mill or e-plant.   But with drying, corn is usually pretty dry in the fall (throw out 2009) this fall it was 18% and some dried it at home and took it to the elevator, one week later it was 15-16%.  I don`t know the economics of drying 3pts and all that monkeying around, just to take it right to the coop anyway, I mean if you dry it don`t sit in line at least hold it until after harvest rush.

 

Bins were put up this summer, that`s taken alot of harvest pressure off.  I`m more inclined to let the elevator have the headache of storing grain and if i want to gamble then go on the board.

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Veteran Advisor

Re: Ray Jenkins video

BA.......that idea of "letting the elevator store the grain" has lead to a captive bid structure in areas where elevator capacity is much greater than on-farm space........this leads to corn bids being very weak at the elevator post harvest vs. what the end users are willing to pay.....I suggest you start tracking 3-5 end users that you could deliver to and monitor basis movement...

 

although this year (with all of the outside piles) may be an anomaly, there are normally good basis opportunities between middle of November and early January at most end users......that is where a basis contract can be beneficial to your marketing....

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Honored Advisor

Re: Ray Jenkins video

Hey Ray, hope to see more of your videos and always enjoy your comments on the Big Show.  Here`s some area bids and basis, "CCF" is Christensen feedmill -.28 basis

 

http://farmersca.com/ 

 

here`s POET at Hanlontown  -.30

 

http://poetbiorefining-hanlontown.aghost.net/index.cfm?show=11&mid=3  

 

here`s 5 Star  that bottom line is the basis history..pretty flat -40¢ then blip of -45¢ at harvest

 

image.pnghttps://charts.aghost.net/grainbid/abbee2129cb57ef477475de36c069ca0f354b1da.png

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Honored Advisor

Re: Ray Jenkins video

time,

That example happens here often.... selling into an enduser market.  Basis gets used to entice some sales, but when the futures come up to spur sales, basis drops back quickly.   We see that senario in the feedlot grain market often enough to use the basis contract if we are timely....

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Veteran Advisor

Re: Ray Jenkins video

I understand.  I had misunderstood the phraseology and got myself confused.  I admit I should pay more attention to working basis.  Commercial elevators make money at it and there is no reason we shouldn't try to, too.

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