Futures vs. cash

By Jon Scheve, Superior Feed Ingredients, LLC

The December USDA report is arguably the least important of the 15 reports released each year for corn and beans because there are rarely any changes made to U.S. balance sheets. This year was no different. The market will now be anticipating the January report, one of the three most important reports of the year, for price direction. South American weather conditions over the next month will also be a potential market driver.

Last week I mentioned I set prices on 40% of my 2021 production and I was asked if they were futures or cash sales. That was a great question. They are futures sales only that did not include any basis values.

I prefer to focus on futures separately because the cash price includes the basis level. I will eventually trade the basis level separately too, so I won’t know my cash price (i.e., futures + basis values) until after both are set. 

I trade futures and basis separately, because they both trade independently of each other and do not hit their highs at the same time. Each one is its own market dynamics and the high in each can be achieved several weeks or months after the other. Some years basis will hit its high before futures and other years the opposite will happen.

Many farmers unfortunately only focus on the cash value; however, this approach can leave money on the table. Basis has its own market and seasonal patterns impacted more by local market supply and demand needs, which can move values 20 to 40 cents during the marketing year. Futures prices are more affected by the entire U.S. and global supply and demand.

To maximize profit potential farmers should have a marketing plan that separates the basis market from futures prices.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.