Posted by: usset001 | August 29, 2008

HTA management

Many producers are approaching an important decision with hedge-to-arrive contracts used to price soybeans before harvest (I hear you – too early and too cheap). If you have not set the basis, review your contract to learn the default date when the basis will be set for you. Also see if you have the option of rolling the hedge forward.

Assuming you have a place to store your new crop soybeans, let me make the case for rolling your HTA forward to the March’09 contract…

(1) There is a 30 cent carry from Nov’08 to Mar’09 contracts ($13.24 and $13.54 closing prices on August 28). This is not a large carry, particularly when we consider the cost of storing $13 soybeans, but it is a positive carry and it buy us time to…

(2) …see if you can’t get a better basis in the late fall or early winter. I can’t be the only person who has noticed the recent strength in the nearby soybean basis. During the last half of July and the first half of August, the basis in Fairmont, MN (home of a large CHS crushing plant) ranged from 45 to 50 cents under the nearby contract. This week the plant is bidding 5 to 10 cents under. To-date, the strength in the nearby basis has not translated into a stronger new crop basis, which continues to range from 100 to 130 cents under in southern Minnesota and northern Iowa. But it does give me hope for better possibilities in the months ahead.

(3) Are you concerned about your 2008 taxable income? Rolling the hedge forward to the March contract allows you to move the income forward to 2009.

Your HTA choice may come down to this: (a) set the basis today and deliver soybeans at 120 cents under the November contract, or (b) roll the hedge forward to the March contract and set the basis early in the new year at 70 cents under the March (think positive!). You could pick up the 30 cent carry, another 50 cents in basis and defer the income to 2009 – all for the cost of rolling the HTA (check the terms of your contract) plus the cost of storing soybeans for 4 months.


Responses

  1. Ed,

    No too many soybeans out here, but wheat producers are in the midst of looking at how to market this year’s winter wheat. Prices have fluxuated this past week (mostly down) and they have bins full of grain to market. Keep up the great work!

    MBMajor

  2. Ed

    In regards to HTA and selling the board to hedge; do you feel that selling deffered months to hedge gives one the flexibilty to help capture an inverse where it to happen?

    I.E. I don’t have any 09 spring wheat sold and I have some 08 spring wheat in the bin; do you think using a HTA or short hedge in the Sept 09 MPLS futures would give me the best chance to have some flexiblity and capture an inverse if MPLS wheat does this winter/spring what it did last year and inverts? Yet if it doesn’t invert I can use the hedge for either what I have in the bin or for 09 wheat?

    Also same question for HTA for 09 corn to be grown should I consider selling 2010 Dec instead of 09 on thoughts that the balance sheet could get tight and invert like it did this last summer when 08 corn was worth a lot more then 09?


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