Al6—Lancaster Farming, Saturday, October 31,1981
Farming’s Futures
By David K. Sauder
Commodity Advisor
Trade Tech, Lancaster
Many farmers have questions
about the futures market. Far
ming’s Futures aims to serve
whatever need farmers have for
information about this market.
Like other farmers who have
contacted us since this feature
began, you too are welcome to send
us your questions.
Here’s several questions far
mers want to know about:
How does a local elevator
establish the price It offers for
grain?
On a typical day, the manager of
a local elevator may recieve a half
dozen or so bids from firms
seeking to purchase grain.
Bids have traditionally been
quoted in terms of a price “track
country station.” This is the price
the buyer is willing to pay for grain
loaded into a rail car alongside the
local elevator. But with more and
more grain being hauled by truck,
it is not unusual for a bid to be in
terms of a price delivered to a
processing plant, terminal or river
shipping point.
The bids may come from a variety
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of prospective purchasers. One
may be from a large terminal
elevator that is assembling a
supply of grain for export. Another
may come from a processor in
need of grain to keep his plant in
full operation. Still another bid
may be from a commercial cattle
feedlot. And yet another from a
barge line operator who is filling a
shipment of grain to the Gulf.
Most of these bidders have a
pretty good idea of about what
price it will take to Bhy grain in the
country on that particular day but
their offering prices may
nonetheless be slightly different,
reflecting the urgency of their
needs.
Just as the buyers have a pretty
good idea what price they will have
to pay to purchase grain from
elevators, the elevator manager
has a pretty good idea what price
he will have to offer to attract
grain from fanners who are
harvesting it or who own and are
storing it. If the manager con
siders the spread to be sufficient to
cover handling costs and provide a
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reasonable profit, chances are he
will accept the best offer received
from a buyer. This price, less the
elevator’s costs and profit thus
becomes that day’s local price for
grain.
This particular scenario is, of
course, subject to variation. The
local elevator may, for example,
decide to fill part or all of an order
from grain that it has in storage.
Or, at a time when the elevator has
available space and the futures
market is offering an attractive
price for future delivery, the
elevator may buy grain for storage
rather than immediate sale and
shipment.
Are futures prices always higher
for the most distant delivery
months? That is, do they always
stair-step upward?
The answer to both questions is
no. Sometimes, within a crop year,
they stair-step downward. This
situation, which is infrequent, is
known as an “inverted” market.
Instead of there being a normal
carrying charge between delivery
months, there is a negative
carrying charge. The market is, in
effect, paying owners of grain to
sell it now instead of storing it. The
amount by which prices for nearby
months are above the distant
delivery months depends entirely
on how much buyers are willing to
pay for immediate delivery.
the usual reason behind an
inverted market is an immediate
strong demand or short supply.
For some reason such as a
possible surge in the need for grain
for immediate export buyers
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need grain delivered now and are
willing to pay a higher price in
order to get it delivered now. As
mentioned, the size of the premium
depends on how badly buyers want
grain and how reluctant owners of
grain are to part with it. Their
hesitancy to sell may be influenced
by an expectation that prices will
climb even higher.
An inverted market is most
likely to occur in a year of short
supply. That is, in a year when the
Store vegetables correctly
YORK Now that the outdoor
growing season is coming to an
end, and the cold-temperatures are
becoming more frequent, storage
of the remaining garden
vegetables will be necessary in
order to protect'them from loss of
quality and decay.
The following table shows the
optimum storage conditions for
various crops.
Vegetables can be stored above
ground, underground or in a
basement or cellar.
Several plans of storage
structures are available. For in
formation on harvesting and
storage, contact your Extension
office.
Well-Ventilated, Cold, Moist
{32°-40°F., 90-95% relative
humidity):
Root Crops - beets, carrots,
horseradish, parsnips, Irish potato,
radish, salsify and turnip.
Cale Crops - (Cabbage Group)
broccoli, brussel sprouts, cabbage.
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supply is small or is expected to
be small in relation to demand.
In this situation, buyers may be
willing to pay a higher price for
grain they don’t yet need
storage costs notwithstanding in
order to assure themselves an
adequate supply and to avoid what
they fear may be still higher prices
later on.
Send your questions on futures
trading to Farming’s Futures,
Lancaster Fanning Newspaper,
Box 366, Lititz, PA 17543.
cauliflower, Chinese cabbage and
kohlrabi.
Greens - chard (Swiss), spinach,
kale, mustard and collards.
Salads - endive, lettuce and
parsley.
Legumes - lima beans and peas.
Vine Crops - cantaloupe and
summer squash.
Other vegetables - asparagus,
green onions, rhubarb and sweet
com.
Well-ventilated, Cool, Moist (45°-
50°F., 80-90% relative humidity):
- cucumber, eggplant, green
beans, okra, sweet peppers,
tomato and watermelon.
Well ventilated, Cool, Dry (45°-
50° F., 50-60% relative humidity):
- dry onions and hot peppers.
Well ventilated, warm, dry (55°-
60° F., 60-70% relative humidity ):
- pumpkins and winter squash.
Well-ventilated, warm, moist
(55°-60* F., 80-85% relative
humidity):
-sweet potatoes.
Big Dutchman chain
and trough feeding
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control is essential for
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