A32—Lancaster Farming, Saturday, November 21,1981 Farming’s Futures By David K. Sauder Commodity Advisor Trade Tech, Lancaster Here are a tew questions received from L F readers this week 1 am affiliated with a large crop operation in western Penn sylvania We customarily market our crops down in the eastern part of the state, but this year it ap pears limited It is our desire to market our crops directly and we are seeking other markets for our crops since we have facilities to store and deliver. Do you have at your disposal‘a list of compames or markets available for agronomic crops in Ohio and along Lake Erie' Any information you can provide will be greatly appreciated. S. Jergensen, KltUmnlng, PA No, I’m sorry we have no such list, but maybe some of our readers can help. If so, we’ll pass the word along to you. I understand that in order to make the correct decision in a hedging situation, one must have a good handle on the •'basis" that is the historical difference between the local price and the Chicago price is this basis available'- Where'How' ... hum J. Ensor, New Windsor, MU. The basis can vary even between local markets in New Windsor and Lancaster. Fortunately, in the eastern states, the basis usually favors the farmer because of our close markets. Local feed mills and grain elevators usually have a very good fix on the basis and may be willing to help with that in formation for your area What is basis? Basis is the number of cents per bushel that, on any given day, the local cash price of a commodity is above or below the current price for a particular futures delivery month. When you hear someone in the gram business discuss basis, however, he is generally talking about the difference between the local cash price and the nearest futures delivery month. For example, in January the current basis for corn would be the dif ference between the local cash price and the March futures price. Example- If the local cash price on a particular day in January were $l.BO and the March futures price were $2.10, the March basis on that day would be “30 cents under." On or soon after the first trading day of the delivery month, the basis calculation switches to the next delivery month For example, on or about the first of March, the basis for corn is computed as !h* amount by which the local cash We Specialize In Aerial Work Usm| Our Twin* Bucket Boom Truck /*<%?/ ELECTRICAL \ / rr j CONTRACTING \ 55F1 I Specializing In \ \ 1 AGRICULTURAL J J WIRING j KAbUB Also Residential Industrial J —fix And Commercial Work / •m. _ Free Estimates C. M. HIGH CO. 320 King St We Have Pofes In Myerstowm PA 1 70€7 Stock 25 30 35 1 45 Phone 717 ttt 7544 pilcc it, UtiivVl Or V K,*V- I'wi/ futures price On or about the first of May, the basis is the amount the local cash price is below or above the J uly futures price. And so on. Specializing In AGRICULTURAL i WIRING The first component is the amount,by which the local cash price is below the cash price in Chicago. This difference is due essentially to transportation cost. A second component is the amount bj whit h the i 'bicago pi ice is < tin entlj below the neai by lutuics pi ice. This diffeience is due to a number of factors, storage costs (including interest and in surance!, handling costs (the expense of loading and unloading) and sellers’ profit margins In the short run, do local cash prices and futures prices usually move up and down together? Usually but not always Major supply-demand developments that aftect futures prices generally have a similar impact on local cash prices. Such as news that GIVE WET FEET A ' BOOT FROSTED HEAT LAMPS *1.69 • 125 or 250 Watt Infrared Also FROST PROOF HYDRANTS Reg 2* $31.99 3’ $33.29 4’ $34.49 5' $35.99 KORY REAR TRACTOR BLADES • All 3 pt. hitch • 360° rotation ». • 7 settings /V • Heavy duty / welded construction Blade Tractor Reg. SALE 6' 40 249 95 ‘149.95 7 40 289 95 ‘229.95 8 60 499 95 ‘459.95 ALSO: KORY RUNNING GEARS ON SALE, 6. 8. 10 TON What are the components uf the basis? CURITY LIGHT *34.99 Fully Automatic 120 Volt Easy to Install Anywhere Economical Mercury Vapor Bulk WE UPS ANYWHERE JUST CALL 717-464-3321 SALE PRICES GOOD THROUGH NOVEMBER 28 30W 1 MILE SOUTH Ol Store Hours Mon Thurs Sat 7 30AM 730 AM 6 00PM 5 00PM Fn 7 30 9 00 sxiiu- pa>' iai nation is in 01 out ot the inaihc, .01 /• ■ lean grain. Or that the Worldwide supply is up or down Orthatlivestocknuinbeis are larger or smaller tlian ex pected. On the other hand, a change in die demand for corn or wheal or soybeans in Chicago doesn’t necessarily mean there will be a corresponding change—or any change at all, for that matter—in the demand for corn or wheat or soybeans in the community of Localville it is even possible tor future prices and the cash price in a particular community to move in opposition du actions. Such could be the case, tor example, it the overall demand tor corn at Cult ports were especially strong. Ot if local processors or feedlots were in CONOCO ANTIFREEZE Reg. $4.39 $ O TD *• SALE W.# Jr Limit 6 Per Customer ) TO EM HEM tE SUPPLY . DIRECTION! FARM A HO/ /_3#l ww WILLOW STRUT I hirrviiuroar l-Mltl SOUTH Or ★ KM HERR FARM A HOME SUPPLY HIM/ m W« £ All " OUARRTVIILI WILLOW STREET SQUARE CANVAS TARPS Size 10 oz. 12 oz. 8;10 2 i mro PIPE ADVANCED DRAINAGE SYSTEMS INC (ASCS ” 4" Solid or 6" Solid or Perforated Perforated Also Available m 8”, 10", 12" 15”, 18" CALL FOR QUANTITY PRICES FARM A HOME SUPPLY R.D. 1, Rte. 272 South, Herrviile Rd. Willow Street, Pa. Phone: (717) 464-3321 uigent need of corn. A community with a tavorable location i elation to the area of demand could thus enjoy an increase u?* price, declining futures priced notwithstanding. Even so, the fact remains that futures prices provide the best available barometer of changes m world supply and demand. As a result, short-term changes m cash and futures prices—up as well as down—tend to occur in concert. Certainly not penny for penny and certainly not always, but usually As will be seen, it is the relative predictability of the relationship between cash and futures prices that makes hedging possible. Send questions on futures trading to Farming’s Futures, Lancaster Farming Newspaper, Box 36fa, Litltz, PA 17543.
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