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| So what hurts or helps the most?
Board at a sizable carry…how are you positioned??
Flat price? Who cares…..What’s motivating behavior?
Returns to storage in excess of costs( interest)…..Possibly storage consideration via delivery in exchange for control.
I’m long…long the basis…I own more grain than I have sold….I don’t care what the flat price is.
I consume/ earn the carry as the basis earns the board spread. When I bot the cash, I sold the differed contract to lock in the carry rather than having to get played in the fund roll…..Funds positions are governed by their prospectus…One can find those and read those if they would like to understand…
Now…a few months later….I need to make my position good…so ABC grain company continues to give me a company car and free cell phone ( not an Obama phone…)..How do I do that and not cost myself anything?
A. Improve basis?….I’m long basis….that works…I’ll take it.
B. Take the carry out of the market? I’m hedged in the differed. Great…That works.
C. Futures rally?….Costs me nothing and I’m wise enough to understand “ when the board inverts…the basis is done doing the work”….I’m making cash sales and walking away as the board brings new unhedged bushels to the market….
Adding: Just got off a conference call and realize I can’t execute against this new found demand….Have too many beans sold vs owing $700 cars in what is now a $300 market. ( Freight trader won’t let me out…different P/L) Have to execute the beans….Now what..relative to wheat?
Bid up the demand for nearby cash while futures respond to that demand by enhancing/ growing the inverse….talk the position….book the offers.
Keep in mind you have XX million owned and hedged wheat in the nearby inventory in Toledo and on the River….It’s Feb….I need 3 more months of storage revs to make the P/L projection.
Since you’re still hedged in the now inverted nearby….the all in solution is to now to deliver a fraction of your inventory and ask the spec long if he’s willing to prove it….How do I deliver? Sell The nearby, write the receipts ( intentions)… game of musical chairs has begun….storage costs and interest costs are now the driver of behavior for the initial stopper and subsequent stopper. Economics generally wins vs ego. Spreads retreat and I reestablish my futures length ( now the last one standing in musical chairs) and I get my wheat back and I have gotten paid to continue to own the other XX bushels of cash.
Edited by Rod@night 2/13/2024 22:59
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Wheat spreads
