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HTA July to August Pricing

From Matt, a Facebook Grain Market Discussion Group Member, on 4 June, 2021:

I have a soybean HTA for June/July delivery.

The current basis posted on the elevator’s website for beans is 50 cents over the July futures for June delivery and 55 over July for July delivery.

I called the merchandiser (to set the basis) and he said that website basis is for cash (spot) delivery. He said my HTA basis is 5 over the August futures.

My contract says June or July delivery so I was going to set basis and deliver next week. But they tell me they are not buying any beans off the July board they are using the August board price so to get my basis it's 55 cent basis minus the 46 or so spread for about a 7 or 8 cent basis on my July contract.

It is a HTA contract that I set July futures price on a while back.

I have until June 30th to set basis. When I did the HTA, the basis offered for June delivery at the time was 20 over the July.

Roger’s Response:

The first question I would ask is why does their website say they are paying 50 over the July for June delivery if they are pricing off the August? Sounds like a sham to confuse farmers to me.

Cargill’s soybean crush plant in Sidney, Ohio switched from pricing off the July to the August this past week, but that does not make a bit of difference to anybody selling beans or setting basis on a HTA contract.

Merchandisers sometimes want and need to get into a more stable futures contract month than the spot (nearby) month. When supplies are tight, the spot month can get very volatile in the weeks before the delivery process starts.

Here is what you need to know:

What is the cash price being paid by that elevator after the close today?

Your merchandiser is paying $16.34 for beans right now. That is the price their website says they are paying and that is what your merchandiser told you they are paying for cash soybeans, i.e.: 50 over the July.

The math formula to determine basis is: Cash price minus futures price = basis

$16.34 minus $15.84 (July futures) = 50 cent basis

$16.34 minus $15.38 (August futures) = 96 cent basis

Whatever your HTA price, you are due to be paid 50 over the July or 96 over the August for your beans.

But, your HTA is not at $15.84. You did not say what the HTA price was, but it does not matter for this explanation. Let’s say your HTA is at $12.00.

So, your HTA contracted beans are worth $12.50 cash if delivered in June.

It makes no difference if the merchandiser prices your beans off the July, August, September, November or January bean futures. The cash price using any of those months is equal to 50 over the July futures, $16.84, or, in your case with a July HTA, 50 over whatever your July HTA price is.

Soon, merchandisers will be going to the November to price cash beans to get more stability than provided by the August futures. If your merchandiser is paying off the November, no problem.

Cash price is $16.84 minus $14.35 November futures price = $2.49 over November.

You may say, “Wow, that is what I want! $2.49 over the November. What a great basis!”

Well yes, it is, but it is the same cash price as 50 over the July.

Two months ago, I had a client whose merchandiser told him he needed to deliver his HTA contracted beans before the first of May because, when the merchandiser goes from pricing cash beans off the May to the July, he was going lose 30 cents a bushel because July beans were 30 cents lower than the May. I had never heard of such crap before. It is the latest merchandiser twisted and confusing lingo to cheat farmers out of money that is rightfully theirs. I realize it could have been an effort to get the client to deliver his beans sooner rather than later, but it was still a hogwash scam.

And now you know why I am the most hated man by the grain industry in America.

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