Welcome to the last post in our series: Secrets to Reading a Bid Sheet! By now, you should feel pretty comfortable navigating a grain buyer’s bid sheet. (If you’ve missed any of the previous posts, take a minute to review them by clicking the links below!)
Secrets to the Bid Sheet Summary
Delivery Dates
Futures Price Part 1
Futures Price Part 2
Change
Basis
The final element in the bid sheet series is CASH PRICE. This is the part of a bid that farmers focus on the most, with good reason, since the cash price on a contract determines what you are paid. Thus, if you decided to contract for the cash price posted, the check you would receive once the bushels are delivered would be equal to: cash price x number of bushels contracted (less any deductions or fees).
Recall that cash price is determined by two components of price: futures and basis.
The futures price is the price the market is willing to pay for the commodity during a specific time frame. The futures price is not determined by the grain buyer. Rather, it is determined by many factors, including national and global supply and demand, weather forecasts, government relations, USDA reports results and fund investment.
Basis, which is added to the futures price in order to calculate cash, is influenced by local supply and demand, transportation costs, profit margin, etc. Basis is determined by the grain buyer, and grain buyers may have different basis levels even if they are located close to one another.
Thus, cash price is determined by two components. The futures price, which is determined by the market, and basis, which the grain buyer determines. When you add the two together for a specific delivery period, the result is the cash price.
The calculation for cash price is as follows:
Cash = Futures + Basis
Let’s look at an example:
Imagine that your local cooperative is posting the following bids for corn on their bid sheet. After you examine the prices posted below, try to answer the the following three questions. (Answers are provided at the end of the post!) 🙂
Questions:
- If you were to haul in a load of corn today (pretend it’s April 17th, 2019), and sell the load as it crosses the scale, what price would you receive for your grain?
- If you know you will have corn to sell for harvest, at what cash price could you forward contract your grain at today? (FYI: Forward cash contract= locking in the cash price posted today for a specific delivery period. Thus, if you choose to forward contract today to lock in the price posted for harvest delivery for 10,000 bushels, you know with certainty what cash price you will receive for those 10,000 bushels when harvest comes around and you deliver the grain.)
- What is the calculation for the cash price posted for June delivery?
How did you do with the questions? Do you feel more comfortable with the cash price? Drop a note in the comments if you need additional explanation or examples!
Next week, we’ll uncover what pieces of information you need to actually MAKE A CASH SALE!
You won’t want to miss it–it’ll take away any fear you’ve had of calling into the grain buyer to make a sale.
If you were waiting for the answers, here they are!
1. $3.35
Description: The cash price posted for delivery in April is $3.35.
2. $3.52
Description: The cash price for harvest delivery (October) is $3.52
3. $3.71 + $-.23 = $3.48
Description: Cash price ($3.48) = Futures Price ($3.71) + Basis ($-.23)