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central illinois | Good description! DP is delayed or deferred pricing, not " no pricing". Elevator is still at risk for the price of grain. Yes, they will hedge the DP purchase. Then they are at risk for basis. From the elevator's perspective DP is most attractive in inverse markets and least attractive in a carry market. DP charges need to cover the basis exposure of the elevator and elevator will actively manage the acquired inventory, in a carry market they may continue to hold the inventory not move it.
The grain trade is a low margin, high volume busines. Price risk managment is the key to long term success. Like most other business, there is no "free lunch" including DP. | |
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DP from end user perspective
