Hope harvest is going well for you all!
If you’re reading this in the tractor, it should provide you between 2-5 minutes of educational “entertainment.” 🙂
Over here, we just finished up beans and moved on to corn.
Considering we’re in the thick of harvest, let’s talk harvest marketing and a strategy that may be valuable for you to try.
In many cases, unless you can store all your production on farm, you’ll find yourself delivering grain that you don’t have forward sold.
When you don’t have a contract to apply the grain to, what do you typically do?
Well, most people choose to ‘spot’ the load, or sell it for the cash price at the end of the day.
Today, I want to give you another option to consider.
Have you ever used a futures pricing order?
A futures pricing order gives you more time to price futures on the grain you delivered, without paying storage.
Let’s work through the following:
1. How a futures pricing order works
2. Advantages & Disadvantages
How it works:
You deliver a load (or loads) of soybeans to the elevator today. For the sake of the example, let’s say you hauled in 3,900 bushels.
You think there’s a chance to capture a few extra cents on futures in the market environment we’re in. However, you’re busy and know you can’t watch the price fluctuations all day to catch it.
So what do you do?
You create and apply the 3,900 delivered bushels to a basis contract at $-0.65 SX0.
(side note: basis must be set on grain prior to or at delivery unless it’s being stored commercially, so that’s why we have to establish basis.)
Then, you put in a pricing order to price futures on the basis contract. You decide to put in the order $.07 above the current market price.
*Remember, the cash price equation is: Futures + Basis = Cash.
Futures and basis can be set separately to establish your cash price. If your futures pricing order fills, you will then have both components (futures & basis) set, and the cash price on the contract will be established at that time.
Here’s what your contract will look like:
bushels: 3,900
delivery: 10/5/20 (today)
basis: $-0.65
futures month: SX20
futures: —
cash price: —
Futures pricing order:
bushels: 3,900
price: $10.28 SX0
order expiration: 10/30/2020
*The futures pricing order will continue to run until it fills, until the expiration date you set on it, until you cancel it, or until you’re forced to price or roll the contract due to the expiration of the futures month.
Advantages & Disadvantages
Advantages:
- You give yourself more time to price futures and an opportunity to capture a higher price than what is posted today.
- You have the flexibility to change the price of the order or cancel the order at any time.
- The order executes without your intervention–you don’t have to watch the combine head with one eye and the markets with another and make a call to set futures.
- The order can fill in the overnight trading session.
Disadvantage
- The market may fall after today and you would’ve been better off spotting the bushels at today’s price.
If you decide using a futures pricing order sounds like something you’d like to do, give your local elevator or your marketing advisor a call.
I’m sure they’d be happy to explain it and answer any questions you have.
Just like all marketing options, evaluate whether this option is right for you.
Remember, just because we like to use futures pricing orders on our farm doesn’t mean they’re the right solution for everyone!