HEDGING IN THEORY AND PRACTICE

Size: px
Start display at page:

Download "HEDGING IN THEORY AND PRACTICE"

Transcription

1 HEDGING IN THEORY AND PRACTICE Ann Berg Senior Commodity Markets Development Expert USAID/FINREP-ІІ Kyiv, 2013

2 July 11 Maize contract (CME) $ 11 April $ 13 June $ 1 March US$/Tonnes $ 29 June $ 28 Jan $ 30 March $ 06 May / / / / / / /2011 2

3 What is hedging on futures market? Transfer of price risk from one market participant to another by buying or selling futures contracts to offset an underlying cash position Producers seek to protect against prices falling hedge anticipated production by selling futures contracts they are called short hedgers End users refiners/millers/feeders seek to protect against prices rising hedge anticipated physical needs by buying futures contracts they are called long hedgers Exporters may hedge risks using long or short strategies 3

4 Simple producer hedge in US Corn Cash price Futures price Month Cash Harvest Price [$/bushel] CME Dec Futures Price [$/bushel] June Harvest bid is 5.00 Sell 10 contracts of 5.00 [50,000 bu] November Cash sale of 4.00 is improved by futures gain of 1.00 Sell 50,000 bu to $3.50 Buy 10 contracts of 4.00 Net price realized = 5.00 = $4.50 The basis is the difference between cash price and futures price. Basis risk is always present after hedging with futures 4

5 Real world deals in Metric Tons One contract of corn = 5000 bushels One bushel of corn = 56 pounds One CME contract of corn = 127 MT Most contracts are 10, 50 or 100 MT lots Wheat and soybeans are heavier [60lbs/bu] One contract of wheat or soybeans is 136 MT 5

6 Exporter hedge Corn cash price futures price April April October China bidding $270/MT 50,000MT corn delivered C&F for November shipment Exporter sells C&F Exporter buys fob cargo from Black Sea $255 =$290 C&F [costings & frt = $35/MT CME December corn [$220/MT] Buys 400 contracts CME [50,000MT = 2m bushels = 400 contracts, each contract is 5000 bushels] Sells 400 contracts CME corn futures $6.10 [$240/MT] Calculation Loses $20/MT Gains $.50 bu [20/MT] Exporter locks in small margin by hedging on futures market. Without hedge exporter would have lost $20/MT 6

7 World maize/corn export prices (fob, US$ per tonne) quotation in or $ / tonne Maize - US 3YC Gulf - $ 312 Maize - Argentina Feed Up River - $ 282 Maize - Brazil Feed Paranagua - $ no quotation Maize - Black Sea Feed - $ 285 7

8 $US/MT CBOT corn vs Ukraine fob corn prices Export tax Food Crisis US drought Export quotas /4/2008 7/4/2008 1/4/2009 7/4/2009 1/4/2010 7/4/2010 1/4/2011 7/4/2011 1/4/2012 7/4/2012 1/4/2013 Corn (CBOT) Corn (FOB) Huge range in Ukraine corn prices $110 $337 [3 x price increase] 8

9 Ukrainian fob basis Food crisis US drought Ranges from large overs to large unders to CBOT corn Subject to degree of speculation in US futures [2008 and 2012] Dependent upon US S&D vs. Ukrainian S&D & ocean freight rate spreads Influenced by government interventions by both countries export restrictions and US biofuel mandates Corn (CBOT) Corn (FOB) 9

10 Forward curve risk extreme backwardation Corn market has been characterized by extreme backwardation this crop year Backwardation is a market structure in which the market is priced at successively lower prices along the curve Backwardation has increased close to delivery because ethanol industry has drawn corn supplies away from delivery market (along Illinois River for export) If holders of long cash position in Black Sea hedged this year in by placing shorts in near month US corn market, they would have lost additional moneys CME Forward Curves Corn FCs Dec 2012 FCs Mar

11 What might have happened 2012 Corn cash price fob Ukraine futures price April 2012 April Last week June July cargoes offered $277/MT Exporter buys 50,000 MT cargo fob July shipment Exporter resells fob $295/MT CME July corn = [$254/MT] Basis = +$23/MT Sells 400 contracts CME July corn Buys 400 contracts CME July corn futures $7.62 [$300/MT] Basis = minus $5/MT Calculation Gains $18/MT Loses $1.17 bu [$46/MT] Exporter s net loss = $28/MT hedging on futures market. 11

12 Basis Risk for Ukrainian traders is large Basis risk between Chicago and other regions has fueled growth in global commodity exchanges China, e.g. trades enormous volumes of agricultural futures. European volumes [NYSE Liffe] have increased dramatically since 2007/8 food crisis but remain light in corn. 12

13 Volumes of contracts traded 13

14 European grain futures & options 2011 Milling wheat : 6.9m Rapeseed: 2.3m Corn:.4m London [cocoa, coffee, sugar, feed wheat]: 11.1m = 20.7m Vol contracts MillingWht Rapeseed Corn Milling wheat comprises 72% of volume Source: nyse liffe 14

15 Basis risk would be substantially reduced by fob or domestic futures delivery contract If fob contract, freight costs, delivery allocations among ports, wait time, would determine execution costs to final destination port instead of price spread between CME and Ukraine except in case of government interference If domestic contract, transportation availability, storage, interest rate level, crop quality would determine economic effectiveness of hedging 15

16 Basis risk would be substantially reduced by fob or domestic futures delivery contract Several steps needed [derivatives law, electronic WHR system, training/education] to facilitate domestic futures market CME created Black Sea wheat contract $US/MT Fob delivery 3 countries, 3 wheat classes Uncertainty of load port[s] delivery adds cost/complexity necessity of foreign bank/broker excludes participation by agrarian domestic market 16

17 Create Ukrainian fob contract: In Theory Exporter could sell corn cargo to Japan, China, et.al and hedge sale by buying Ukrainian corn futures delivered fob If futures remains cheapest execution, then exporter would remain long into delivery month and will receive notification of deliveries locations [ports] by month end Exporter charters freight and nominates vessel to load out and execute sale 17

18 In practice Exporter may prefer to buy full cargo from one load port since 3 4 load ports make cargo very expensive with daily charter rates $15,000 $20,000/day [rethink contract design for corn] Export restrictions could make load out infeasible Liquidity also an issue 18

How futures markets work. Convergence between cash and futures

How futures markets work. Convergence between cash and futures How futures markets work Convergence between cash and futures Futures markets Futures markets have existed over 150 years as a means for managing price risk Futures contracts are purchase and sales agreements

More information

Chapter Five: Risk Management and Commodity Markets

Chapter Five: Risk Management and Commodity Markets Chapter Five: Risk Management and Commodity Markets All business firms face risk; agricultural businesses more than most. Temperature and precipitation are largely beyond anyone s control, yet these factors

More information

Market will worry about demand later Weekly Corn Review for May 11, 2016 By Bryce Knorr

Market will worry about demand later Weekly Corn Review for May 11, 2016 By Bryce Knorr Market will worry about demand later Weekly Corn Review for May 11, 2016 By Bryce Knorr USDA didn t do much to help the corn market in its May 10 reports other than give soybeans a big lift. That could

More information

Introduction to Futures Markets

Introduction to Futures Markets Agricultural Commodity Marketing: Futures, Options, Insurance Introduction to Futures Markets By: Dillon M. Feuz Utah State University Funding and Support Provided by: Fact Sheets Definition of Marketing

More information

Market Monitor Number 3 November 2012

Market Monitor Number 3 November 2012 Market Monitor Number 3 November 2012 AMIS Crops: World Supply-Demand Balances in 2012/13 World supply and demand situation continues to tighten for wheat and maize but rice and soybeans have eased. In

More information

1 CASH SETTLED AGRICULTURAL CONTRACT SPECIFICATIONS - FUTURES

1 CASH SETTLED AGRICULTURAL CONTRACT SPECIFICATIONS - FUTURES 1 CASH SETTLED AGRICULTURAL CONTRACT SPECIFICATIONS - FUTURES FUTURES CONTRACT CHICAGO CORN CHICAGO WHEAT KCBT HARD RED Trading system code CORN REDW KANS BEAN MEAL OILS Trading Hours 09h00 12h00 South

More information

COMMODITIES. CBOT Soybeans vs. DCE Soybean Meal and Soybean Oil Crush Spread

COMMODITIES. CBOT Soybeans vs. DCE Soybean Meal and Soybean Oil Crush Spread COMMODITIES CBOT vs. DCE and Soybean Oil Spread JULY 2015 CBOT SOYBEANS VS. DCE SOYBEAN MEAL AND SOYBEAN OIL CRUSH SPREAD A key component in the soybean market is what is known as the crush spread. are

More information

Principles of Hedging with Futures

Principles of Hedging with Futures MARKETING & UTILIZATION Cooperative Extension Service Purdue University West Lafayette, IN 47907 NCH-47 Principles of Hedging with Futures Chris Hurt, Purdue University Robert N. Wisner, Iowa State University

More information

Soybean Supply and Demand Forecast

Soybean Supply and Demand Forecast Soybean Supply and Demand Forecast U.S. soybean planted acreage is expected to increase 11.5 million acres over the forecast period. U.S. soybean yields are expected to increase 7 bushels per acre or an

More information

Merchandising and Inventory Management of Commodities: Carrying Charges and Basis

Merchandising and Inventory Management of Commodities: Carrying Charges and Basis Merchandising and Inventory Management of Commodities: Carrying Charges and Basis Raleigh B. Wilson Several months ago when I was asked to prepare a program related to the cash activity of the grain industry,

More information

Appendix V Basic Grain Accounting for Hedge Accounts

Appendix V Basic Grain Accounting for Hedge Accounts Basic Grain Accounting for Hedge Accounts Grain accounting is unique because the value of the commodity that is being dealt with changes over time. Unlike other businesses that have inventory at a set

More information

Section III Advanced Pricing Tools

Section III Advanced Pricing Tools Section III Learning objectives The appeal of options Puts vs. calls Understanding premiums Recognizing if an option is in the money, at the money or out of the money Key terms Call option: The right,

More information

Advance Trading Inc Merchandising Seminar. The Warehouse Industry

Advance Trading Inc Merchandising Seminar. The Warehouse Industry Advance Trading Inc Merchandising Seminar The Warehouse Industry How does the marketplace assure the consumer an adequate supply of grain all year? Consumption January-December October Production How does

More information

Index futures contract features. Contract features. MGEX Agricultural Index. MGEX Agricultural Index Futures and Options

Index futures contract features. Contract features. MGEX Agricultural Index. MGEX Agricultural Index Futures and Options MGEX Agricultural Index Futures and Options 1 MGEX Agricultural Index Futures and Options Five agricultural indexes futures and options contracts: National Corn Index (NCI) National Soybean Index (NSI)

More information

MGEX Agricultural Index Futures and Options

MGEX Agricultural Index Futures and Options MGEX Agricultural Index Futures and Options 07 Crop Outlook and Int l Durum Forum Minot, ND 1 Thank you very much for having me here. I would like to acquaint you with a new set of risk management tools.

More information

Australian Grains Industry Conference

Australian Grains Industry Conference Australian Grains Industry Conference 2011 MERRICKS CAPITAL Adrian Redlich where preparation meets opportunity About Merricks Capital Australian based funds manager established in 2007 14 Employees (9

More information

What is Grain Merchandising, Hedging and Basis Trading?

What is Grain Merchandising, Hedging and Basis Trading? Grain Merchandising What is Grain Merchandising, Hedging and Basis Trading? Grain merchandising describes the process of buying and selling grain. Agribusiness firms that merchandise grain include grain

More information

General Information Series

General Information Series General Information Series 1 Agricultural Futures for the Beginner Describes various applications of futures contracts for those new to futures markets. Different trading examples for hedgers and speculators

More information

Commodity Futures and Options

Commodity Futures and Options Understanding Commodity Futures and Options for Producers of Livestock and Livestock Products CIS 1100 The Authors Larry D. Makus, C. Wilson Gray and Neil R. Rimbey* Introduction Risk associated with an

More information

September 2016 Crop Market Update Public Policy Department Budget & Economic Analysis Team

September 2016 Crop Market Update Public Policy Department Budget & Economic Analysis Team September 2016 Crop Market Update Public Policy Department Budget & Economic Analysis Team U.S. and Foreign Stockpiles Remain Elevated John Newton, Ph.D., (202) 406-3729, jnewton@fb.org USDA s September

More information

July 2010. Chart 1: World Edible Oil Production

July 2010. Chart 1: World Edible Oil Production Agricultural Products An Overview of the Edible Oil Markets: Crude Palm Oil vs Soybean Oil July 2010 Edible vegetable oils are some of the most crucial cooking ingredients in the world. In addition, edible

More information

AGRICULTURE UNDERSTANDING BASIS

AGRICULTURE UNDERSTANDING BASIS AGRICULTURE UNDERSTANDING BASIS General ContentsInformation Series Understanding Basis..................................... 2 Keeping History........................................ 6 Putting Basis to

More information

UKRAINE COMMODITY FUTURES MARKET DEVELOPMENT SURVEY AND ROADMAP RECOMMENDATIONS. June 18, 2015

UKRAINE COMMODITY FUTURES MARKET DEVELOPMENT SURVEY AND ROADMAP RECOMMENDATIONS. June 18, 2015 UKRAINE COMMODITY FUTURES MARKET DEVELOPMENT SURVEY AND ROADMAP RECOMMENDATIONS June 18, 2015 Breakdown of Participants Segment Number Agri-producers 821 Grain processors 51 Oil seed processors 10 Cattle

More information

ICE BARLEY FUTURES & OPTIONS. www.theice.com. April 2013. IntercontinentalExchange ICE Futures Canada ICE Clear Canada

ICE BARLEY FUTURES & OPTIONS. www.theice.com. April 2013. IntercontinentalExchange ICE Futures Canada ICE Clear Canada ICE BARLEY FUTURES & OPTIONS April 2013 IntercontinentalExchange ICE Futures Canada ICE Clear Canada www.theice.com Page 2 of 5 ICE Futures Canada is pleased to introduce new Barley futures and options

More information

CBOT Soybean Crush. Reference Guide

CBOT Soybean Crush. Reference Guide CBOT Soybean Crush Reference Guide Introduction In the soybean industry, the term crush refers both to a physical process as well as a value calculation. The physical crush is the process of converting

More information

COCERAL Position Position on MiFID II Level 2 legislation Definition of regulatory and implementing technical standards

COCERAL Position Position on MiFID II Level 2 legislation Definition of regulatory and implementing technical standards COCERAL Position Position on MiFID II Level 2 legislation Definition of regulatory and implementing technical standards Brussels, 2 December 2014 COCERAL would like to bring the views of agricultural commodities

More information

Managing Feed and Milk Price Risk: Futures Markets and Insurance Alternatives

Managing Feed and Milk Price Risk: Futures Markets and Insurance Alternatives Managing Feed and Milk Price Risk: Futures Markets and Insurance Alternatives Dillon M. Feuz Department of Applied Economics Utah State University 3530 Old Main Hill Logan, UT 84322-3530 435-797-2296 dillon.feuz@usu.edu

More information

FINANCIALLY SETTLED, AGRICULTURAL INDEXES

FINANCIALLY SETTLED, AGRICULTURAL INDEXES FINANCIALLY SETTLED, AGRICULTURAL INDEXES N ow there s a new way to trade and manage price risk for MGEX agricultural index futures and options. From pricing advantages in options, to the ability to hedge

More information

Investment in United States Futures and

Investment in United States Futures and Investment in United States Futures and Options Markets: A Discussion of the Possible Impact on Commodity Prices 1 Frank S. Rose COLLEGE OF BUSINESS, LEWIS UNIVERSITY, UNITED STATES JOINT MEETING INTERGOVERNMENTAL

More information

Commodity products. Self-Study Guide to Hedging with Grain and Oilseed Futures and Options

Commodity products. Self-Study Guide to Hedging with Grain and Oilseed Futures and Options Commodity products Self-Study Guide to Hedging with Grain and Oilseed Futures and Options In a world of increasing volatility, CME Group is where the world comes to manage risk across all major asset classes

More information

Fertilizer is a world market commodity, which means that supply

Fertilizer is a world market commodity, which means that supply Supply & demand, Energy Drive Global fertilizer prices The Fertilizer Institute Nourish, Replenish, Grow Fertilizer is a world market commodity necessary for the production of food, feed, fuel fiber. &

More information

FUTURES TRADERS GUIDE TO THE WASDE

FUTURES TRADERS GUIDE TO THE WASDE FUTURES TRADERS GUIDE TO THE WASDE Your Guide To Understanding The USDA World Agriculture Supply & Demand Estimates For Corn, Soybeans And Wheat By Craig & Drew Daniels 1.800.800.3840 What Is The WASDE?

More information

FCStone Grain Recap October 1, 2015

FCStone Grain Recap October 1, 2015 CORN: A choppy but firm market today. Today starts the march of the private crop estimates led off with FCStone s number this afternoon. Export sales reported today showed net bookings of 748.2 tmt as

More information

July 10, USDA World Supply and Demand Estimates

July 10, USDA World Supply and Demand Estimates July 10, 2015 - World Supply and Demand Estimates Corn Projected 2015/16 U.S. feed grain supplies are lowered this month with reductions in corn beginning stocks and production. Corn beginning stocks for

More information

October 1, 2015. Contents. 1. Recap. 2. Physical Market Rates. 3. Arrivals. 4. Weather. 5. Charts and Outlook. 6. Disclaimer

October 1, 2015. Contents. 1. Recap. 2. Physical Market Rates. 3. Arrivals. 4. Weather. 5. Charts and Outlook. 6. Disclaimer Contents 1. Recap 2. Physical Market Rates 3. Arrivals 4. Weather 5. Charts and Outlook 6. Disclaimer 1 Recap Indian markets NCDEX Net % Vol. OI Previous Close Open High Low % Volume OI Soybean OCT5 3450

More information

ICE Futures U.S., Inc. CASH-SETTLED US AGRICULTURAL FUTURES AND OPTIONS CONTRACTS

ICE Futures U.S., Inc. CASH-SETTLED US AGRICULTURAL FUTURES AND OPTIONS CONTRACTS ICE Futures U.S., Inc. CASH-SETTLED US AGRICULTURAL FUTURES AND OPTIONS CONTRACTS TABLE OF CONTENTS Rule Subject SUBCHAPTER A FUTURES CONTRACTS 14.00A Scope 14.01A Contract Size 14.02A Contract Months

More information

Section III Advanced Pricing Tools. Chapter 14: Buying call options to establish a maximum price

Section III Advanced Pricing Tools. Chapter 14: Buying call options to establish a maximum price Section III Chapter 14: Buying call options to establish a maximum price Learning objectives Hedging with options Buying call options to establish a maximum price Delta and the hedge ratio Key terms Delta:

More information

2010 Risk and Profit Conference Breakout Session Presenters. 9. Marketing Grain Using a Storage Hedge

2010 Risk and Profit Conference Breakout Session Presenters. 9. Marketing Grain Using a Storage Hedge Orlen Grunewald 2010 Risk and Profit Conference Breakout Session Presenters 9. Marketing Grain Using a Storage Hedge Orlen Grunewald is a professor in the Department of Agricultural

More information

Understanding and Using Basis - Grains

Understanding and Using Basis - Grains Understanding and Using Basis - Grains By: E. Dean Baldwin Reviewers: John Ferris and David Holder Edited by Duane Griffith and Stephen Koontz 1 Basis is defined as the amount in cents per bushel a specified

More information

INSIGHT SPECIAL: Coffee Futures 101

INSIGHT SPECIAL: Coffee Futures 101 COFFEE DIVISION OF ED&F MAN December 2011 INSIGHT SPECIAL: Coffee Futures 101 CBS&A Coffee Business Ser vices & Academy, a Volcafe Initiative Highlights All commodity markets tend to be volatile. Agricultural

More information

Commodities Case Study

Commodities Case Study Commodities Case Study MANAGING AUSTRALIAN WHEAT PRICE RISK WITH KC HRW WHEAT OPTIONS MAY 27, 2014 ASIA RESEARCH TEAM CME GROUP IN COLLABORATION WITH: DR JOHN WILLIAMS, EXECUTIVE DIRECTOR AUSTRALIAN COMMODITY

More information

Contingent Claims: A stock option that is a derivative security whose value is contingent on the price of the stock.

Contingent Claims: A stock option that is a derivative security whose value is contingent on the price of the stock. Futures and Options Note 1 Basic Definitions: Derivative Security: A security whose value depends on the worth of other basic underlying variables. E.G. Futures, Options, Forward Contracts, Swaps. A derivative

More information

Hedging strategies aim to reduce price risk

Hedging strategies aim to reduce price risk April 2014 INSIGHTS Hedging strategies aim to reduce price risk AgriThought AgriBank provides financial solutions to meet the needs of production agriculture in America s heartland. We feature our research

More information

CBOT AGRICULTURAL PRODUCTS

CBOT AGRICULTURAL PRODUCTS CBOT AGRICULTURAL PRODUCTS Business Development 141 W. Jackson Boulevard Chicago, IL 60604-2994 312-341-7955 fax: 312-341-3027 New York Office One Exchange Plaza 55 Broadway, Suite 2602 New York, NY 10006

More information

Corn Transportation Profile

Corn Transportation Profile Corn Transportation Profile AMS Transportation and Marketing Programs August 2014 Marina R. Denicoff Marvin E. Prater Pierre Bahizi Executive Summary America s farmers depend on transportation as the critical

More information

CROP REVENUE COVERAGE INSURANCE PROVIDES ADDITIONAL RISK MANAGEMENT WHEAT ALTERNATIVES 1

CROP REVENUE COVERAGE INSURANCE PROVIDES ADDITIONAL RISK MANAGEMENT WHEAT ALTERNATIVES 1 Presented at the 1997 Missouri Commercial Agriculture Crop Institute CROP REVENUE COVERAGE INSURANCE PROVIDES ADDITIONAL RISK MANAGEMENT WHEAT ALTERNATIVES 1 Presented by: Art Barnaby Managing Risk With

More information

Hedging: To buy or sell a futures contract on a commodity exchange as a temporary substitute for an intended later transaction in the cash market.

Hedging: To buy or sell a futures contract on a commodity exchange as a temporary substitute for an intended later transaction in the cash market. Section I Learning objectives Register for Commodity Challenge and join an open game Understanding your challenge Ground rules for trading in Commodity Challenge Illustrate a simple hedge with futures

More information

Chapter 1 - Introduction

Chapter 1 - Introduction Chapter 1 - Introduction Derivative securities Futures contracts Forward contracts Futures and forward markets Comparison of futures and forward contracts Options contracts Options markets Comparison of

More information

KCBOT: The Kansas City Board of Trade was formally chartered in 1876 and trades hard red winter

KCBOT: The Kansas City Board of Trade was formally chartered in 1876 and trades hard red winter Section I Introduction to Futures and Options Markets Learning objectives To know major agricultural futures exchanges To see the types of commodities traded To understand common characteristics of futures

More information

FCStone Grain Recap January 6, 2016

FCStone Grain Recap January 6, 2016 CORN: CH16 made new contract lows but were unable to hold below unchanged into the close. Weekly ethanol production marginally higher this week, up 4 thbpd to 996. Ethanol stocks built again reaching 21099

More information

Wheat Transportation Profile

Wheat Transportation Profile Wheat Transportation Profile Agricultural Marketing Service / Transportation and Marketing Programs November 2014 Marina R. Denicoff Marvin E. Prater Pierre Bahizi Executive Summary America s farmers depend

More information

CBOT Agricultural Markets. An Introduction to Trading CBOT Agricultural Futures and Options

CBOT Agricultural Markets. An Introduction to Trading CBOT Agricultural Futures and Options CBOT Agricultural Markets An Introduction to Trading CBOT Agricultural Futures and Options Table of Contents Introduction..................................................................... 3 Chapter

More information

Mechanics of the Futures Market. Andrew Wilkinson

Mechanics of the Futures Market. Andrew Wilkinson Mechanics of the Futures Market Andrew Wilkinson Risk Disclosure Options and Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading

More information

Risks Associated With Marketing

Risks Associated With Marketing Risks Associated With Marketing November, 2013 Federal Reserve Bank of Chicago Market Risk (Price Risk) is Always Present Two Components Solution Futures Price Risk Basis Risk (Cash price relative to futures

More information

Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar

Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar CME FX futures provide agricultural producers with the liquid, efficient tools to hedge against exchange rate risk

More information

Grain Marketing 101. University of Maryland Extension

Grain Marketing 101. University of Maryland Extension Grain Marketing 101 Jenny Rhodes Shannon Dill John Hall Extension Educators, Agriculture & Natural Resources Marketing terminology CBOT futures Basis Contracts Forward Contract Hedge to Arrive Basis Contract

More information

Contents (Click on the topics)

Contents (Click on the topics) Contents (Click on the topics) 1. Recap 2. Physical Market Rates 3. Arrivals 4. Weather 5. Charts and Outlook 6. Disclaimer 1 Recap Indian markets NCDEX % Vol. Previous Close Open High Low % Volume Soybean

More information

MERCHANDISING AND INVENTORY MANAGEMENT OF COMMODITIES: CARRYING CHARGES AND BASIS

MERCHANDISING AND INVENTORY MANAGEMENT OF COMMODITIES: CARRYING CHARGES AND BASIS MERCHANDISING AND INVENTORY MANAGEMENT OF COMMODITIES: CARRYING CHARGES AND BASIS by Raleigh B. Wilson Continental Grain Company Director, Chicago Board of Trade JJEVERAL months ago when I was asked to

More information

Understanding New Generation Grain Contracts November, 2005

Understanding New Generation Grain Contracts November, 2005 Understanding New Generation Grain Contracts November, 2005 Developed by: Steven D. Johnson, Ph.D. Farm & Ag Business Management Field Specialist Introduction Grain marketing and related cash and futures

More information

What are futures contracts?

What are futures contracts? The Futures Market Introduction and Mechanics (c) 2002-2013 Gary R. Evans. May only be used for non-profit educational purposes only without permission of the author. What are futures contracts? A futures

More information

Research Commodities El Niño returns grains and soft commodities at risk

Research Commodities El Niño returns grains and soft commodities at risk Investment Research General Market Conditions 20 May 2015 Research Commodities El Niño returns grains and soft commodities at risk Meteorologists now agree that El Niño has arrived and project that it

More information

Hedging Milk with BFP Futures and Options

Hedging Milk with BFP Futures and Options Curriculum Guide I. Goals and Objectives A. Gain an understanding of milk price seasonality. B. earn about basis and how to track it over time. C. earn how to hedge future milk sales with BFP futures and

More information

Craig Thomas MSU-Extension Educator Dairy Farm Business Management and Milk Marketing

Craig Thomas MSU-Extension Educator Dairy Farm Business Management and Milk Marketing Livestock Gross Margin Insurance for Dairy Craig Thomas MSU-Extension Educator Dairy Farm Business Management and Milk Marketing Livestock Gross Margin Insurance for Dairy (LGM-Dairy) is a subsidized insurance

More information

Commodity Futures and Options

Commodity Futures and Options Understanding CIS 1089 Commodity Futures and Options Larry D. Makus and Paul E. Patterson for Grain Marketing The Authors: L.D. Makus Professor, Department of Agricultural Economics and Rural Sociology,

More information

Effects of Southern Hemisphere Production on Stocks, Trade and Prices

Effects of Southern Hemisphere Production on Stocks, Trade and Prices Effects of Southern Hemisphere Production on Stocks, Trade and Prices J O S E P H W. G L A U B E R U S D E P A R T M E N T O F A G R I C U L T U R E M A R I O J. M I R A N D A T H E O H I O S T A T E U

More information

Supply & demand outlook for the canola industry

Supply & demand outlook for the canola industry Supply & demand outlook for the canola industry J.P. Gervais Chief Ag Economist March 2015 @jpgervais Canola Canola is one component of the environment for oil producing crops Growth in demand has supported

More information

GrainCorp Acquisition Investor Presentation. May 1, 2013

GrainCorp Acquisition Investor Presentation. May 1, 2013 GrainCorp Acquisition Investor Presentation May 1, 2013 Safe Harbor Statement Some of our comments constitute forward-looking statements that reflect management s current views and estimates of future

More information

Internal Revenue Service

Internal Revenue Service Internal Revenue Service Number: 201120008 Release Date: 5/20/2011 Index Number: 1382.00-00, 199.06-00 ------------------- ------------------------ ---------------------------- -------------------------------

More information

Grain elevators play a crucial role in agricultural commodity markets through the marketing, storage, and

Grain elevators play a crucial role in agricultural commodity markets through the marketing, storage, and 2008 Can Grain Elevators Survive Record Crop Prices? By Jason Henderson, Assistant Vice President and Omaha Branch Executive and Nancy Fitzgerald, Policy Economist, Banking Studies and Structure R ecord

More information

PDPE Market Analysis Tool: Import Parity Price. What insights can this tool provide? How to analyse, interpret and use the data

PDPE Market Analysis Tool: Import Parity Price. What insights can this tool provide? How to analyse, interpret and use the data PDPE Market Analysis Tool: Import Parity Price The import parity price (IPP) is the price at the border of a good that is imported, which includes international transport costs and tariffs. If a good is

More information

THE UNDAMENTALS AND ECHNIQUES RADING OMMODITY PREADS. c s

THE UNDAMENTALS AND ECHNIQUES RADING OMMODITY PREADS. c s c s THE UNDAMENTALS AND ECHNIQUES OF RADING OMMODITY PREADS The purpose of this booklet is to give you a better understanding of various aspects of spread trading in the futures market. Center for Futures

More information

Introduction to Options. Commodity & Ingredient Hedging, LLC www.cihedging.com 312-596-7755

Introduction to Options. Commodity & Ingredient Hedging, LLC www.cihedging.com 312-596-7755 Introduction to Options Commodity & Ingredient Hedging, LLC www.cihedging.com 312-596-7755 Options on Futures: Price Protection & Opportunity Copyright 2009 Commodity & Ingredient Hedging, LLC 2 Option

More information

Basis The Cash Futures Relationship

Basis The Cash Futures Relationship Agricultural Commodity Marketing: Futures, Options, Insurance Basis The Cash Futures Relationship By: Dillon M. Feuz Utah State University Funding and Support Provided by: Fact Sheets Knowing and Managing

More information

ETBE - back in fashion? Trends and opportunities in the ETBE & Ethanol markets

ETBE - back in fashion? Trends and opportunities in the ETBE & Ethanol markets ETBE - back in fashion? Trends and opportunities in the ETBE & Ethanol markets Presentation to World Biofuels Markets, Amsterdam Geraldine Gilmartin 16 th March, 21 Outline ETBE: Global markets overview

More information

CHOOSING AMONG CROP INSURANCE PRODUCTS

CHOOSING AMONG CROP INSURANCE PRODUCTS CHOOSING AMONG CROP INSURANCE PRODUCTS Gary Schnitkey Department of Agricultural and Consumer Economics University of Illinois at Urbana-Champaign Email: schnitke@uiuc.edu, Phone: (217) 244-9595 August

More information

Agricultural Commodity Marketing: Futures, Options, Insurance

Agricultural Commodity Marketing: Futures, Options, Insurance Agricultural Commodity Marketing: Futures, Options, Insurance By: Dillon M. Feuz Utah State University Funding and Support Provided by: On-Line Workshop Outline A series of 12 lectures with slides Accompanying

More information

Financial Instruments Traded on the Commodity Exchange

Financial Instruments Traded on the Commodity Exchange Financial Instruments Traded on the Commodity Exchange Using the Financial Markets A cotton trader will almost always prefer to manage his price risk through physical positions and contracts for cotton,

More information

2013 World Grain Outlook

2013 World Grain Outlook 2013 World Grain Outlook Presented by: John Roach February 18, 2013 Disclaimer: Futures/options trading involves substantial risk of loss and trading may not be suitable for all investors. You should fully

More information

The Board of Trustees of the University of Illinois, 1996 www.illinois.edu

The Board of Trustees of the University of Illinois, 1996 www.illinois.edu AUTHOR'S NOTE Soon after it was established, the Commodity Futures Trading Commission appointed several study committees to hold hearings and recommend policies and regulations. I was asked to address

More information

First Quarter 2015 Earnings Conference Call. 20 February 2015

First Quarter 2015 Earnings Conference Call. 20 February 2015 First Quarter 2015 Earnings Conference Call 20 February 2015 Safe Harbor Statement & Disclosures The earnings call and accompanying material include forward-looking comments and information concerning

More information

Futures Contracts. Futures. Forward Contracts. Futures Contracts. Delivery or final cash settlement usually takes place

Futures Contracts. Futures. Forward Contracts. Futures Contracts. Delivery or final cash settlement usually takes place Futures 1 Futures Contracts Forward Contracts Futures Contracts Forwards Private contract between 2 parties Not standardized Usually one specified contract date Settled at end of contract Delivery or final

More information

P R O F E S S I O N A L R E S P E C T I N T E G R I T Y D Y N A M I C E X C E L L E N C E BMD CRUDE PALM OIL FUTURES

P R O F E S S I O N A L R E S P E C T I N T E G R I T Y D Y N A M I C E X C E L L E N C E BMD CRUDE PALM OIL FUTURES P R O F E S S I O N A L R E S P E C T I N T E G R I T Y D Y N A M I C E X C E L L E N C E BMD CRUDE PALM OIL FUTURES Advantage & Opportunities A BRIEF HISTORY CPO futures launched since October 1980 by

More information

Missouri Soybean Economic Impact Report

Missouri Soybean Economic Impact Report Missouri Soybean Economic Report State Analysis March 2014 The following soybean economic impact values were estimated by Value Ag, LLC, as part of a Missouri Soybean Merchandising Council funded project.

More information

Third Quarter 2014 Earnings Conference Call. 13 August 2014

Third Quarter 2014 Earnings Conference Call. 13 August 2014 Third Quarter 2014 Earnings Conference Call 13 August 2014 Safe Harbor Statement & Disclosures The earnings call and accompanying material include forward-looking comments and information concerning the

More information

Brazil s Response to Lower Commodity Prices Will Infrastructure Improvements Support Further Expansion?

Brazil s Response to Lower Commodity Prices Will Infrastructure Improvements Support Further Expansion? Brazil s Response to Lower Commodity Prices Will Infrastructure Improvements Support Further Expansion? By Dr. Michael Cordonnier www.soybeansandcorn.com soycorn@comcast.net 630-325-0192 (Chicago) Overview

More information

Hammersmith Marketing Ltd - Grain Trading

Hammersmith Marketing Ltd - Grain Trading Representative Office: +33.9.7044.4881 Mobile: +33.6.8068.4564 Fax: +33.4.5774.7575 13+220 Quartier La Galine, D99, Mas Martin, St Remy de Provence, 13210 France Corporate Head Office: Suite 200B, Centre

More information

Introduction of CME Group and Proposed Launch of Physical North American Aluminum Contract. January 13, 2014

Introduction of CME Group and Proposed Launch of Physical North American Aluminum Contract. January 13, 2014 Introduction of CME Group and Proposed Launch of Physical North American Aluminum Contract January 13, 2014 Disclaimer Futures trading is not suitable for all investors, and involves the risk of loss.

More information

CBOT AGRICULTURAL PRODUCTS GRAIN AND SOYBEAN FUTURES AND OPTIONS

CBOT AGRICULTURAL PRODUCTS GRAIN AND SOYBEAN FUTURES AND OPTIONS CBOT AGRICULTURAL PRODUCTS GRAIN AND SOYBEAN FUTURES AND OPTIONS Futures Markets provide the mechanism to ensure fairly consistent prices for grains, soybeans, and processed foods. Managing Uncertainty

More information

Oil Trading. Simon Basey / November 28, 2013

Oil Trading. Simon Basey / November 28, 2013 Oil Trading Simon Basey / November 28, 2013 What does IST do? Markets BP s equity crude oil, NGLs and natural gas Offers risk management products to third parties Imports crude oil and other feedstocks

More information

Basic Terminology For Understanding Grain Options, G85-768-A

Basic Terminology For Understanding Grain Options, G85-768-A G85-768-A Basic Terminology For Understanding Grain Options This publication, the first of six NebGuides on agricultural grain options, defines many of the terms commonly used in futures trading. Lynn

More information

CFD Product Guide. www.myfxchoice.com

CFD Product Guide. www.myfxchoice.com CFD Product Guide www.myfxchoice.com Contents Notice Risk Warning 1. Trading Hours 2. Contract Size \ Contract value 3. Tick size \Tick value\spread value 4. Margin Requirements 5. Overnight Rollover Cash

More information

Commodity Market Monthly

Commodity Market Monthly Commodity Market Monthly Research Department, Commodities Unit July 13, 216 www.imf.org/commodities commodities@imf.org Commodity prices rise 3.1 percent in June, despite a stronger dollar following U.K

More information

Definitions of Marketing Terms

Definitions of Marketing Terms E-472 RM2-32.0 11-08 Risk Management Definitions of Marketing Terms Dean McCorkle and Kevin Dhuyvetter* Cash Market Cash marketing basis the difference between a cash price and a futures price of a particular

More information

CME Group Trends in Grain Derivatives March 2013 Turkish Flour Industrialists Federation. Lisa Kallal, CME Group London

CME Group Trends in Grain Derivatives March 2013 Turkish Flour Industrialists Federation. Lisa Kallal, CME Group London CME Group Trends in Grain Derivatives March 2013 Turkish Flour Industrialists Federation Lisa Kallal, CME Group London CME Group Role in Market Place: Price Transparency Anonymous matching Price Discovery

More information

Commodity Trade Finance CAIA Zurich. February 2013

Commodity Trade Finance CAIA Zurich. February 2013 Commodity Trade Finance CAIA Zurich February 2013 Contents Some statistics about world trade 03 Financing the commodity trade flows 06 Commodity trade finance : the market 08 Why invest in commodity trade

More information

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp.

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp. Futures Investment Series S P E C I A L R E P O R T No. 2 The Mechanics of the Commodity Futures Markets What They Are and How They Function Mount Lucas Management Corp. The Mechanics of the Commodity

More information

Seminar. Global Foreign Exchange Markets Chapter 9. Copyright 2013 Pearson Education. 20 Kasım 13 Çarşamba

Seminar. Global Foreign Exchange Markets Chapter 9. Copyright 2013 Pearson Education. 20 Kasım 13 Çarşamba Seminar Global Foreign Exchange Markets Chapter 9 9- Learning Objectives To learn the fundamentals of foreign exchange To identify the major characteristics of the foreign-exchange market and how governments

More information

Futures Trading in Cheese: How Will it Work?

Futures Trading in Cheese: How Will it Work? University of Wisconsin-Madison Department of Agricultural Economics Marketing and Policy Briefing Paper Series Department of Agricultural Economics, College of Agricultural and Life Sciences, University

More information

Third Quarter 2015 Earnings Conference Call. 21 August 2015

Third Quarter 2015 Earnings Conference Call. 21 August 2015 Third Quarter 2015 Earnings Conference Call 21 August 2015 Safe Harbor Statement & Disclosures The earnings call and accompanying material include forward-looking comments and information concerning the

More information

Agricultural. Metric. conversion guide

Agricultural. Metric. conversion guide Agricultural Metric conversion guide Passport to the World The Chicago Board of Trade (CBOT ) has developed this handy pocket guide to help you in converting metric tons to U.S. measurements. How to Use

More information