CFS - Futures First Contract
Jun 23, 2020
Amy Nelson, Grain Marketing Manager
One of our most commonly used contracts because of its FLEXIBILITY and SIMPLICITY.
How it works:
A futures first contract allows you to manage risk by averaging up grain sales by selling in increments when the CBOT gives an opportunity, including the option to sell several years out. It gives the flexibility to roll as many times as necessary within a crop year, allowing you to pick up carry in the market or get a better basis later in the marketing year. When you are ready to haul, you can set the basis for any approved location (another co-op, ethanol plant, etc.) at no extra cost. There is no need for a commodity account, no margining, and no unexpected checks to write.
- The market rallies and you want to lock in a percentage of sales on the CBOT (including the potential of several years out) without having to make margin calls on your own.
- You want the delivery period and delivery location undecided until a later date.
- If you have on-farm storage and want to capture the most carry in the market as possible.
Scenario 1: On 6/13/19, you sold 10,000 Dec19 futures at a $4.50-.03 cent fee. At the time, it looks like a short crop locally, so you decide to wait to set a basis closer to harvest. At harvest, basis levels are more than what they were on 6/13/19 when the futures price was locked in.
Hypothetically fall basis was -.25, final Cash Price=$4.50, futures-.03 cent fee, and -.25 basis=$4.22 Fall Cash Price.
Scenario 2: On 6/13/19, you sold 10,000 Dec19 futures at a $4.50-.03 cent fee. You have on-farm storage and want to capture the carry in the market, so you roll your futures contracts to July 20 for .25 cents-.02 cent roll fee and set the basis for -.15 to an ethanol plant.
Final Cash Price=$4.50 futures-.03 cent fee+.25 cent carry to July-.02 cent roll fee-.15 basis=$4.55 Cash
****This contract can be done in 5,000 or 1,000-bushel increments