Jackie Reichter DeBruce Grain, Nebraska City
Grain Marketing Commodity od Exchanges/Futures Symbols Influences on the Market Common Marketing Terms Types of Contracts Terms of Contracts
Commodity Exchanges CBOT Chicago Board of Trade Corn, Soybeans, Spring Wheat, Soybean Meal, Soybean Oil KCBOT Kansas City Board of Trade Hard Red Winter Wheat CME Chicago Mercantile Exchange Livestock Live Cattle, Lean Hogs MGE HRS Minneapolis Wheat
Futures Symbols C Corn S Soybeans HRW Hard Red Winter Wheat EXAMPLES CH10 Corn/March 2010 CZ10 Corn/December 2010 SH10 Soybeans/March 2010 SX10 Soybeans/November 2010 KWN10 Kansas City/HRW/July 2010
Month Symbols F January. Dec & Jan soybeans are traded in this contract t month H March. All commodities are traded in this contract for Jan, Feb, Mar shipment except soybeans which h only Feb & Mar use H or March K May. All commodities are traded in this contract for Apr, May shipment also known as A/M N All commodities traded in this contract month for June, July known as J/J. N or July may be referred to as new crop for HRW since wheat is harvested during this period.
Month Symbols U September. All commodities for Aug/Sep shipment (A/S) X November. Oct/Nov (O/N) New crop soybeans are traded in this contract Z December. Corn for Oct/Nov & Dec delivery are traded in this contract (OND-also referred to as new crop corn)
Influences on the Markets Bulls Bears
Bullish News for Corn Market World Corn stocks remain relatively tight March/May Futures prices will need to remain supported in the spring in order to induce an adequate acreage increase Ethanol usage is up along with margins There is interest in the speculative community to buy commodities
Bullish News for Corn Market Pension funds/endowments are increasing their exposure to commodities as an inflation hedge The rally in crude oil to an $80 dollar level is bullish for demand for corn for ethanol The trade expects a decline in US Corn production in the final USDA Crop Production report
Bearish News for Corn Market Large S. American crop which will shift export demand from the U.S. to S. America. Cheaper prices in S.A. & poor quality of the U.S. crop will be added incentive for export business to turn to S. American origins - $4 to $6/MT cheaper Some EU Countries are having a financial meltdown (Greece, Spain, Portugal, Ireland) which causes our US Dollar to go up & make our commodities more expensive to purchase High unemployment rates in the US contributes to reduced consumer demand for meat
Bearish News for Corn Market Livestock feeding margins remain depressed which will continue to limit US Corn feed usage. Reduced hog numbers also will contribute EPA delayed the decision to raise the ethanol blend cap above 10% Poor U.S. corn quality has resulted in a loss in U.S. corn export sales & poor storability of this year s crop could result in corn moving at a faster than normal pace
Bullish News for Bean Market There continues to be expectations that significant money will flow into the commodity market, resulting in additional fund buying in the grain markets The trade is optimistic that the U.S. economy has bottomed & that growth will occur
Bullish News for Bean Market Cold weather across the U.S. should be adding to the U.S. livestock feed consumption Strong U.S. Soybean crush pace U.S. legislation l extending the $1.00 per gallon biodiesel tax credit is expected to be passed by the end of March
Bearish News for Bean Market South American soybean production is forecast to expand to record levels - $10 to $18/MT discount to U.S. Russia s ban on imports of U.S. poultry is threatening the U.S. domestic soybean meal usage China now requires import permits for soybeans, soybean meal & pork products
Bearish News for Bean Market U.S. Hog numbers will remain below year ago levels for the entire 2009-10 marketing year Some are projecting the increase of U.S. Soybean carryouts in 2010-11 U.S. Soybean meal will find increased competition from DDG S in domestic feed markets as the ethanol grind continues to accelerate
Common Marketing Terms Bid: An offer to buy a commodity at a specified price. Offer: This refers to an offer to sell made by the seller. Contract: Agreement that binds the buyer and seller. Flat Price: Refers to the $/ price of cash grain (flat). Spot: Refers to selling grain at the close of that days market. Futures: Contracts for delivery of commodities at a later time traded on organized exchanges.
Common Marketing Terms Basis: The difference between cash grain price and futures price. (basis minus futures) Example: $3.60 futures price (board of trade) $3.35 35 cash price (at the elevator) $0.25 basis (difference) Narrow basis: When the spread between the futures price and the cash price decreases. Wide basis: When the spread between the futures price and the cash price increases. Basis is determined by demand, freight costs, and other factors. Option Price: A basis of zero, cash is even with the futures (Futures $3.60, Cash $3.60, Basis 0)
Common Marketing Terms FOB: Free on Board This means that the selling price includes loading out without additional charges. Example: $3.60 futures price (board of trade) $3.35 cash price (at the elevator) $0.25 basis (difference) $0.10 freight charges $3.25 FOB the farm (-35CH basis)
Common Marketing Terms Hedge: A transaction intended to reduce risk. It is taking an equal and opposite position in the cash market. Inverse: A market in which nearby values are higher than deferred ones. Carry: Opposite of inverse, when deferred months markets are worth more than the nearby markets
Common Marketing Terms Ethanol an alternative fuel for internal combustion engines Roll to move cash grain or futures position into a different or deferred slot Volatility generally, the degree of price changes relative to a time in a market (big swings in either direction)
Types of Contracts - Common Cash Flat price of grain (current or deferred) Spot Delivered grain at current days price Basis The objective is to lock-in a favorable basis even if the futures price is not acceptable. The futures price must be established during the trading session.
Types of Contracts - Common (DP) Deferred Price or (NPE) No Price Established this is an unpriced contract in which title passes upon delivery, but neither futures price nor basis has been established. Service charges may apply.
Types of Contracts -Specialty Futures First: allows producer to establish and lock in a favorable futures price, while leaving open the possibility for basis gains
Types of Contracts -Specialty Average Price: allows producer to sell cash grain at a price based on the average daily futures price over a set period of time, plus or minus the basis. This allows the grain to be priced during a time of historically i stronger prices. March/June Other specialty contracts t are available
Terms of Contract Grade of grain Quantity Price Shipment period Weights i & Grades (location) Discount scale Payment terms Trade rules (NGFD)
Specialty Crops Food grade yellow corn White corn Popcorn Yellow waxy corn White waxy corn Lo Lin beans (yellow corn, yellow soybeans, yellow grain sorghum, hard red winter wheat)
Barge Loading-Nebraska City
Pile Tarping-Shenandoah
Grain Quality Grain Quality Issues: Dried corn Aeration fans Temperatures warming in March FM & Damage problems Much safer to assume you have problems, even if you don t know about them yet. Be careful this spring not to wait to earn a little more on basis or cash price. This can be a net loser if quality deteriorates. Selling sooner at a weaker basis or flat price can be a net winner at times.
Quotes Bear market corrections are far more violent and far swifter than are Bull Market Corrections: Why this is so remains a mystery to us, but they are; we accept it and we move on. Do more of that which is working and less of that which is not: This works well in life as well as trading. If there is a secret to trading and to life, this is it!
Summary The nature of price risk varies greatly from commodity to commodity. Marketing is the part of the farm business that transforms production activities into financial success. Unanticipated forces, such as weather or government action, can lead to dramatic changes in crop and livestock prices. As agriculture moves toward a more global market, these forces stem increasingly from world factors. Focus on long term profitability, not short-term windfalls.
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