July Basis Contract? Read This. 6/27/22
- Wright Team
- Jun 27, 2022
- 2 min read
July basis contracts (and long July futures positions) need to be rolled or priced (liquidated, cashed out) by the close of business Wednesday this week, the 29th. Deliveries, if any, on July futures will be assigned to owners of long July positions the evening of the 29th. You nor your merchandiser want to own cash grain in a Chicago Board of Trade Approved Warehouse on the Illinois River. It is not the end of the world, but expensive (8 to 14 cents a bushel) to sell it.
A July basis contract is a long (buy) position in July futures.
If you expect futures to move higher after Wednesday, you want to roll the July position from July to a deferred month, probably September, but it could be any futures contract month.
The process is quite simple, but you need to understand it.
To liquidate the long (buy) July futures position, July futures must be sold.
To re-establish the long futures position, another contract month must be bought. Let’s say you chose the September.
Now get this:
Sell July futures and buy September futures.
That’s it.
Do those two things, and you will have rolled your July basis contract (or futures position) to September, which must be liquidated or rolled no later than the next to the last business day of August, because September deliveries will be assigned the evening of August 30th.
How will your July basis change when rolled to September?
The selling price of the July futures contract minus the buying price of the September futures contract = the change from the July basis to the September basis.
July corn this morning is $7.43. Sell it at $7.43 to liquidate the long July corn position.
September corn is $6.69. Buy it to establish a long position in the September corn.
The math: sold at $7.43, bought at $6.69. That is the American way: buy low and sell high.
$7.43 minus $6.69 = 74 cents profit.
If your July basis was even (zero) to the July, your September basis will be 74 over the September.
If your July basis was 20 under the July, your September basis will be 54 over the September.
If your July basis was $1.20 over the July, your September basis will be $1.94 over the September.
July soybeans are at $16.20; September soybeans are at $14.52.
$16.20 minus $14.52 = $1.68 profit.
If your July basis was even (zero) to the July, your September basis will be $1.68 over the September.
July KC wheat is at $9.95; September KC wheat is at $10.04.
$9.95 minus $10.04 = 9 cent loss.
If your July basis was even (zero) to the July, your September basis will be 9 under the September.
July CBOT wheat is at $9.30; September CBOT wheat is at $9.48.
$9.30 minus $9.48 = 18 cent loss.
If your July basis was 10 under the July, your September basis will be 28 under the September.
Naturally, we feel better to roll and gain basis, but the cash price is the same in all cases. The July basis contract has the exact same net cash price as the September basis contract, although your merchandiser will charge you roll fee; the standard is one cent a bushel.
Always check the math. Here is why:
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