Tidbits, Commodities Market Problem, FOB, Live Stream Recording 2/2/26
- Wright team
- 5 hours ago
- 5 min read
What is wrong with the way we market ag commodities in this country?
When grain is contracted for deferred delivery at a fixed price, the grain elevator hedges those bushels in the futures market. That enables them to pay the farmer the contracted price when he delivers the grain later.
For example, in June you execute a December corn HTA (or forward contract) at $4.40 on 50,000 bushels. When you deliver the corn in October, December corn is $3.60. The elevator sells your corn for $3.60. Where does the elevator get the other 80 cents to pay you $4.40 plus or minus the basis? That 80 cents comes from their hedge account where they sold December corn at $4.40 and offset that contract with a buy of December corn at $3.60.
What if December corn is at $5.60 when you delivered on the $4.40 HTA corn? The elevator pays you the HTA contract price of $4.40 and sells your corn for $5.60. The elevator sells your physical corn for $1.20 more than they paid you and that $1.20 gain in the cash market covers the $1.20 loss their futures hedge suffered. The elevator went short at $4.40 and lifted the hedge by buying December corn at $5.60.
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