Bushels sitting at the elevator this year? Why you might consider a basis contract

This year there have been a lot of game time marketing decisions made.

If I said I was proud of that, I’d be lying to you.

Usually, harvest “game time” decision making is not a place you want to be.

Rather, it tends to mean you’re taking a reactive instead of a proactive approach to your grain marketing.

Once you’ve hauled bushels to the elevator and are forced to make a reactive marketing decision, there are generally just a few options available to you.

1. If there’s a storage program offered, you could place the bushels on storage (for a fee) and pay to put off making a decision for a while longer.

2. You could sell the bushels today and establish your cash price. From that point, you could execute a strategy using futures or options to stay in the market if you think there’s an opportunity.

3. You could use a basis contract, which still gives you some time to price futures and establish your cash price but keeps you from having to pay storage fees.

The third option, a basis contract, is one we just decided to use on some soybeans we had at the elevator.

Let me break it down for you:

We had soybeans we’d hauled into the local elevator because we were out of storage. They weren’t forward sold so we weren’t hauling on a contract.

Rather, there was a 30 day period they could stay on ‘open storage’ at no cost before we had to make a pricing decision.

And this is exactly where they sat…because why make a decision before you have to?

Once that 30th day hit, we had to put them on a contract or storage fees were going to kick in. (I’m sure none of you can relate to this type of marketing decision procrastination…)

So now what? Do we let storage kick in, price them, or put them on a basis contract?

In our case, we’d priced most of our soybeans that were hauled to town, so we wanted to keep some unpriced so we could capitalize on a potential rally in the futures market before the end of the year.

However, we personally didn’t see a lot of opportunity for basis to improve enough to make up for the cost of storage. Thus, we ruled out the option to store these bushels.

Let’s not kid ourselves, we also recognized our inability to make decisions until we have to, which is a plenty good enough reason not to put bushels on storage.

We ended up putting the soybeans on a basis contract at a level of $-1.05 (SF20).

Since the elevator was bidding against the January board (SF20), we liked that we still had time (AKA could procrastinate) to make a futures pricing decision.

How does that work?

Recall that cash price is established on a contract by setting both Futures & Basis. (Futures + Basis = Cash)

You can set each component of the cash price separately, or both at the same time.

The elevator won’t require you to set the other price component (futures in this case) or roll (we’ll talk about rolling next week!) until the futures month is nearing expiration and they start bidding against the next futures month.

For our January (SF20) soybean basis contract, we have until the end of December to make a decision to either price futures or roll.

In summary, the basis contract helped us accomplish two goals.

1. We avoid paying storage fees and establishing a crutch for ourselves to procrastinate.
2. We get time to set futures and leave the opportunity open to take advantage if we can catch some futures price appreciation before the end of December.

If you have bushels at the elevator this year that haven’t been proactively marketed, consider your options.

You might not decide to use a basis contract, and that’s ok.

What’s important is that you think through what your options are and what strategy makes the most sense for your operation.

The one thing I ask of you: Promise me you won’t just jump straight to putting bushels on storage (or continuing to pay storage if they’re already on it) if you don’t have a plan established.

Next week: We will talk about what it means to ‘roll’ an HTA or Basis contract!