The futures trap

[glasshouse]

So who is going to be able to meet their forward sold tonnages?

 

[njneer]

So who is going to be able to meet their forward sold tonnages?

How does this work,then?.
you forward sell, at an agreed rate per ton?.
what happens if you cannot meet the agreed tonnage?.
Heard of a farmer who signed a contract with local distillery to forward supply grain.
Harvest was a disaster with weather that year and couldnt meet the agreed tonnage.
Though oh well I will get X / Per Ton for what was supplied at the agreed rate but
distillery held him to the agreed tonnage in the contract and he had to buy it in to supply them to meet the tonnage agreed in the terms of the contract and it cost him money.
May be an urban legend but was well touted at the time.

 

[glasshouse]

If you look at 2012, wheat sold forward at £160 couldnt be supplied
Market price was £220 so farmer has to pay £60 ton at least

 

[Brisel]

Can you rename the thread "Forward selling trap" @glasshouse ? Liquidating futures positions is easier than cashing out contracts for physical grain.

If it cheers you up, I had to pay out £40/t to fulfil wheat contracts in 2012 that I couldn't supply. Only 50% sold on 2020 harvest but as yield drops with no rainfall that % is going higher...

 

[Al R]

Can you rename the thread "Forward selling trap" @glasshouse ? Liquidating futures positions is easier than cashing out contracts for physical grain.

If it cheers you up, I had to pay out £40/t to fulfil wheat contracts in 2012 that I couldn't supply. Only 50% sold on 2020 harvest but as yield drops with no rainfall that % is going higher...

I was told by someone very wise who forward sold some crops 2 years ahead at times that you should never forward sell more than 30% of what you expect. Basically incase of harvests like 2008 and 2012.

 

[William]

Restitution is a word that you never want your grain trader to utter.

 

[Barleymow]

Nothing to sell until it's in the barn ,might be new disease ir weather event wipe it out

 

[SilliamWhale]

If you look at 2012, wheat sold forward at £160 couldnt be supplied
Market price was £220 so farmer has to pay £60 ton at least

Me!

However a pandemic seems to get insurance companies out of a spot

 

[farmerm]

I have some old crop available you can buy to fill a contract hole and avoid a shortful....

 

[glasshouse]

Can you rename the thread "Forward selling trap" @glasshouse ? Liquidating futures positions is easier than cashing out contracts for physical grain.

If it cheers you up, I had to pay out £40/t to fulfil wheat contracts in 2012 that I couldn't supply. Only 50% sold on 2020 harvest but as yield drops with no rainfall that % is going higher...

I was two loads of wheat short in 2012
Merchant took the huff bigtime, but didnt charge me the shortfall

 

[DrWazzock]

I haven’t sold anything forward since 2012.

 

[yellow belly]

You loose more by selling forward and not delivering than
nor selling and getting good yields and prices fall

the volatility in the last 15 years makes it more costly
the previous 25 years selling forward was a safe bet

when you are certain of the harvest yield then selling forward can be a good option
by April we can see the likely harvest
this year we have all known that the harvest has yield since december

small harvests get smaller

 

[czechmate]

How does this work,then?.
you forward sell, at an agreed rate per ton?.
what happens if you cannot meet the agreed tonnage?.
Heard of a farmer who signed a contract with local distillery to forward supply grain.
Harvest was a disaster with weather that year and couldnt meet the agreed tonnage.
Though oh well I will get X / Per Ton for what was supplied at the agreed rate but
distillery held him to the agreed tonnage in the contract and he had to buy it in to supply them to meet the tonnage agreed in the terms of the contract and it cost him money.
May be an urban legend but was well touted at the time.

If you look at 2012, wheat sold forward at £160 couldnt be supplied
Market price was £220 so farmer has to pay £60 ton at least

Getting out of my 2012 forward sales cost only just short of 30K

 

[glasshouse]

Getting out of my 2012 forward sales cost only just short of 30K

How many tons?

 

[Chae1]

I can't see how it's a trap?

I'm fully aware of what I'm committing to when I fix loads.

 

[czechmate]

How many tons?

I saw the fusarium quite early and saw what was going to happen so bought back my sale of 700 tonnes. The price continued to rise after, so sold it again for more than I had bought it back for but the bill from the merchants was still a shock.
No premium for the “milling wheat” as it was sh!t of course either.
Actually 2012, is half the reason I moved here.

 

[czechmate]

I can't see how it's a trap?

I'm fully aware of what I'm committing to when I fix loads.

Absolutely.
Sometimes I used to feel smug loading lorries thinking you had sold it for a k more than you could now get. Other times, loading lorries thinking, oops. Stopped thinking about it after a while.
Here, I find it bizarre, we load bulls on a lorry with no idea of the price until a couple of weeks later!

 

[Chae1]

Absolutely.
Sometimes I used to feel smug loading lorries thinking you had sold it for a k more than you could now get. Other times, loading lorries thinking, oops. Stopped thinking about it after a while.
Here, I find it bizarre, we load bulls on a lorry with no idea of the price until a couple of weeks later!

I could get caught out this year. If it stays dry I will have fixed too much.

Only fixed 0.8t/acre but high N and screenings could be a issue I fear.

 

[DanniAgro]

Restitution is a word that you never want your grain trader to utter.

Margin Call is surely a close second.

 

[glasshouse]

I can't see how it's a trap?

I'm fully aware of what I'm committing to when I fix loads.

Its a trap when you get a failed harvest and prices shoot up, meaning you have to fund a big difference between the market price and what you sold at