cancel
Showing results for 
Search instead for 
Did you mean: 
Veteran Advisor

Re: futures now

Rayfcom,

After reading your post you got to be Joking around. You can’t be serious and you must be laughing, trying to make everyone mad.
0 Kudos
Senior Contributor

Re: futures now

No I am serious. Why don't farmers deliver into the CBOT futures contracts ? From what I have read, you have to produce a warehouse receipt to the buyer you transacted the contracts with for the number of bushels you sold. The receipt has to come from a CBOT approved warehouse, of which they list thirteen pages of approved warehouses in Iowa alone in their documentation on the subject. The warehouse has to deliver the corn to one of many terminals along the Illinois River, where its loaded onto barges and sent to where ever it has to go for the buyer to collect it. 

 

The only reason I can figure out why farmers accept a haircut of 40-something cents (the "basis") for their corn is that the cost of transporting from warehouse to River terminal is too expensive. But we know there are companies doing it, and they are making a profit for their work...that's where the basis goes, the transport companies sell the futures, buy corn from farmers at the reduced cash price, and ship the corn for delivery. I calculated the difference between selling at the basis price as opposed to selling through the futures market to be about $2000 per every 5000 bushels, and I am assuming the company buying the cash corn and transporting it is earning a 15-30% profit margin for their work, or about $9000 to $18,000 for every 150,000 bushel they transport (which is the typical production of a 1000 acre corn field). 

 

So the question is why aren't more farmers selling futures and delivering to warehouses rather than taking the hit of 40-something cents per bushel by selling at cash prices ?

 

Does it require a lot of equipment for the farmer to transport the corn to a warehouse > If so, how do you get your corn to whoever you sell it to now ?

 

Are the transport costs from warehouse to River terminal higher than I have estimated, and if so, how does the transporter doing that business now make a profit ? Has anyone actually investigated this ? Like I wrote, I sure would look into it if I had a stake in a farm.

 

I am not trying to be a wise guy, just trying to understand the mechanics of the product delivery system better, because it affects the fundamentals of price action in the futures market. As some other farmers have written, the delivery process is mostly embraced by the huge farm companies, which leads me to believe that unless you have a real lot of corn its not price efficient to deliver it yourself. 

 

0 Kudos
Honored Advisor

Re: futures now

Yep you are just guessing
0 Kudos
Highlighted
Senior Contributor

Re: futures now

Okay, fine, now what's the real story ? Why would you rather sell your crop for half a dollar less to a cash dealer than have it delivered for a gain of $2000 per 5000 bushels into a future contract ? What are the costs that diminish that $2000 potential gain ?

0 Kudos
Honored Advisor

Re: futures now

Try it
0 Kudos
Senior Contributor

Re: futures now

That two word answer tells me that you don't know the real answer because you have never bothered to look into it. Why don't you just say that ? You always were told that it wasn't cost effective, you don't have the time to devote to the shipping, whatever. Like the truth, not some nonsense that does not add anything of value to the conversation. 

 

With all the farmers on this site, I am amazed that no one has been able to answer a simple question : how much would it cost you to ship 5000 bushels from a warehouse in your area to one of the Illinois River terminals for delivery into a futures contract. At least some of the intelligent among you related that delivering into a futures contract is the domain of the big farming concerns, which gave me the clue that its not worth doing unless you have a tremendous amount of corn to deliver. But still no one can tell me what the cost is for a small amount.

 

Pretty amazing. 

0 Kudos
Honored Advisor

Re: futures now

Figure (5) overloaded trips each $4 a loaded mile of 350 miles. It would cost me $6,100 to haul 5,000 bushels a little illegally ...so +$1.20 per bushel.    "14 hours on duty"  to make a RT of 700 miles, that`s one trip per day, better hope there ain`t a 3 hour long line.

 

 

0 Kudos
Senior Contributor

Re: futures now

Okay, I'm starting to understand...thank you for that information.

 

Now the 350 miles, is that to a warehouse or is that to a terminal on the Illinois River ? 

 

 

When you sell your corn to your cash dealer, do you also have to truck it there yourself or does the dealer come to you to pick it up ? How many miles away from your farm is the dealer(s) you use for your cash sales ? 

 

Personally, I think the means that farmers use to get their crops to market and then onto the processing plants is as interesting as the farming techniques used to grow the crops. When I am in the food market, it always amazes me how efficiently this country can turn a crop in the field into aisles of wheat produces and sections of fresh vegetables. Its absolutely incredible considering everything that has to go correctly for the whole process to work, yet the stores are packed with food for everyone to eat every day. Its truly an amazing industry when I think about it. All the stops the kernels of corn had to make from the field to the bag of Steamfresh Sweet Corn I grab from the freezer at Stop & Shop...along with the inspections to make sure the food doesn't poison anyone. Its mind boggling that it all works out. 

0 Kudos
Honored Advisor

Re: futures now

Ray, I actually made a multiplication mistake, it should be $7100 to haul 5,000bu/350mi.  Around here E-Plants and feed mills might get you 20 cents more than a coop elevator.   25 years ago before all these "value added" uses our basis sucked even worse.  Well, farmers were encouraged to improve their own basis with a small livestock herd and market their grain "on the hoof".    It`s probably too far to truck grain over 100 miles ...if you truck it over 50mi and you`re honest about it you`re just "buying yourself a job"  unless it`s something like "organic blue corn" or something.

0 Kudos
Honored Advisor

Re: futures now

Moron, you don’t get answers to your question of delivering corn from a warehouse to a terminal from farmers for two reasons. 1 it is not an available option for them “-in/out charges make it unprofitable”
2 if that option existed —is is so variable ——- well for the locals here it is a 365 mile trip one way. No one is going to answer it or respect the source of the question.

0 Kudos