farming’s futures
By David K. Sauder
Commodity Advisor
Trade Tech, Lancaster
Here are several questions
fanners ask about the futures
market.
How do cash prices differ from
futures prices?
Futures prices are quotes for
delivering a designated quality of
gram at a specific place at a
specific tune.
The delivery place (or places) is
set forth in the rules governing the
futures contract. The delivery time
consists of certain designated days
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AGRI EQUIPMENT INC.
2754 Creek Hill Rd
Leola, PA 17540
717-656-4151
I. G. SALES
Rt. 113, Box 200
Silverdale, PA
215-257-5135
G. HIRAM
BUCHMAN, INC.
Rte 519-N‘otf Rte. 46
P O Box 185
Beividere, NJ 07823
201-475-2185
during the delivery month.
It follows that gram delivered to
a different place or at a different
tune is likely to have a different
price. Such differences do, in fact,
exist and are due primarily to
transportation and storage costs.
The number of pnce possibilities
is practically unlimited. For
example, m a locality that nor
mally ships its gram to buyers in
Chicago, the cash price of com in
January is likely to be below the
ventilation
DEPENDABLE MOTORS
Honey Brook, PA
215-273-3131
215-273-3737
HENRV q LAPP SOLLENBERGER SILOS
ntraici a. UHrr rfD2, Chambersburg, PA
RDI, Cams, Gap, PA 17527 717-264-9588
717-442-8134
HARRY L. TROOP
Rt. 1 Cochranvitle, PA 19330
215-593-6731
GEORGE A. COLEMAN BENNETT MACHINE CO.
Rt #2, Box 216 1601 S Dupont Blvd.
Elmer, NJ Milford, OE
609-358-8528 302-422-4837
ERB& HENRY
EQUIP., INC.
22-26 Henry Avenue
New Berlinville, PA
215-367-2169
March futures price by the cost ot
shipping gram to Chicago plus the
carrying charge for storing grain
from January to March. (If freight
cost is 30 cents a bushel and
carrying charges are 4 cents a
month, the local cash price in
January might be below the March
futures price by a total of 38 cents a
bushel.)
Local cash prices aren’t always
less than futures prices. In some
areas of the country that enjoy a
location advantage in relation to
Chicago, cash prices are
frequently of even consistently
higher than futures prices.
The amount of the advantage in
any given month is, as in any other
community, affected by storage
costs. For example, if in. January
the local cash price is 20 cents over
the July futures price and carrying
charges are 4 cents a month, the
local price in February may be 24
cents over the July futures pnce.
And by March it may be 28 cents
over the July futures price.
What effect -does location
on the cash price of grain?
ROVENDALESUPPLY
RD2, Watsontown, PA 17777
717-538-5521
I. A. SWOPE
Box 121, RDI
Myerstown, PA
717-933-4758
DETWILER SILO
REPAIR
Rt 2, Newville, PA
717-776-7533
Lancaster Farming, Saturday, November 14,1981—05
Differences in location—or,
more specifically, differences in
transportation costs due to
location—are certainly the major
reason gram prices differ from one
location to another. If one could
imagine a situation in which all
transportation were free or in
which the cost ot transportation
were not related to distance, Uien
the price of gram would be prac
tically the same in every location.
There would, of course, still be
some differences such as
possible premiums for faster
delivery or higher quality. Or, m
some other community, prices
might be lower because farmers
lack storage space and are anxious
to sell.
In the real world, however, it
hardly needs to be said that
transportation is not free and the
cost of transportation is not
unrelated to distance. Buyers
seeking to purchase gram con
tinuously take the cost of tran
sportation into account m deciding
what price to bid to one elevator
versus their bid to another
elevator.
have
As a result, sellers m some
communities are at a definite
disadvantage m terms of location
and therefore in terms of price.
They may, for example, be located
a considerable distance from the
nearest market where gram is
used or assembled for export. Or
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TUT
HERSHEY EQUIPMENT
INC.
SYCAMORE IND PARK
255 PLANE TREE DRIVE Route iO West At
LANCASTER, PA 17603 The Centerville Exit
' (717)393-5807
they may lack access to low-cost
transportation. Or they may be at
a disadvantage because their
location does not give them a wide
variety of marketing alternatives.
In contrast, sellers in some other
community may enjoy a location
that enables them to choose bet
ween several actively-competing
markets for their gram. Or they
may have an advantage because of
several forms of inexpensive
transportation. Or they may have
both advantages.
It should he noted that price
differences due to location are
subject to change. A location that
is at a disadvantage at one tune
may enjoy an advantage at some
other tune. For example, assume a
certain community m lowa nor
mally ships its gram eastward for
eventual processing or export and
that the local price is typically
lower than in communities which
are close to these markets. Were
there to be a suddenly short supply
of gram m the Southwest and Far
West, the ability to ship gram
westward at a lower cost would, in
all likelihood, be rapidly reflected
m a higher price.
Yesterday’s location disad
vantage could become today’s
location advantage.
Send your questions on futures
trading to Farming’s Futures,
Lancaster Farming Newspaper,
Box 366, Lititz, Pa. 17543.
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