EHGrain - Marketing Alternatives
(spot selling) The selling of grain "across the scales." Taking that days price, the day the grain is hauled to the elevator. Advantages: You know the price and get the check immediately. No "obligation" to deliver at a future date. Disadvantages: The seller is subject to market moves until they pull on the scales.
At EHG, the farmer pays a fee for grain to be stored. This allows the farmer to deliver the grain and have the opportunity to price it at a later date. The title remains with the depositor of grain. Advantages: Because the title remains in the farmers name, they can continue to participate in certain government programs. EHG is responsible for maintaining the quality of the grain and sweeping the bin. Disadvantages: The cash price may decline. Farmers should consider interest costs on borrowed money. Without a hedge its pure speculation.
The seller secures a cash price for a future delivery period in advance. This eliminates both price and basis risk. Advantages: Farmer knows their price when the contract is made. Disadvantages: Prices and basis can improve after farmer agrees to contract.
Allows the farmer to lock in the relationship between the cash market price and the futures price (that is the basis) at a specific delivery point via a contract to deliver physical grain. Advantages: Can lock in a favorable basis. Farmer can take advantage of a potential rising futures market.
Hedged to Arrive:
(HTA or Futures Only Contract) this contract establishes the futures (CBOT Price) level for a forward contract. The basis is set later, prior to delivery. Advantages: Farmer can lock in a favorable futures price (CBOT). The farmer can participate in improving basis levels. Disadvantages: Basis may decline.
Another marketing tool for farmers: Hedging and Agricultural Options:
We now recommend "do it yourself" hedging and ag options. Visit InteractiveBrokers.com
for more information.