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S Illinois | When hedged or holding a short futures position, a carry market where further out contracts are higher than nearby allows for a “buy low sell high” to occur or to roll and pickup the price difference between two contracts. So if one was sold in the Dec contract and Mar was 15 cents higher, one would buy the Dec position back and sell the Mar. So the grain would still be sold(rolled) just in a later month at a higher price.
With higher interest rates and even at currently lower prices than the previous years, what is considered full carry has gotten larger. Instead of 10-12 cents being the max price difference, that has gotten closer to 20+ cents between contracts. With a big crop this would mean one could pick up to 20 cents each time a new contract month becomes the one being traded. So Dec to Mar: possible 20 cents, Mar to May possible 20 cents, May to July: possible 20 cents. This is where bins and storage along with a hedge can really pay for themselves irregardless of what price actually does.
14 cent carry Dec to Mar is a little light so 6 of 1 half a dozen in what contract month one sells right now. Would definitely not push back against using Dec right now. We just are unlikely to pick up another 15 cents above current value or 30 cents all together unless we just get a massive massive crop with no place to put everything come Oct. | |
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Thank you all for participating
