The basis for good commodity decisionmaking is, well, basis. Basis index values that is. And recently, Barchart released a free whitepaper that explains how grain buyers and sellers can potentially earn more money from their grain by using basis index values to identify profit opportunities.
The document helps people understand how changes and trends in basis can potentially help users buy grain cheaper, sell grain for more, optimize hedging, make better lending decisions, and generate higher profits.
Here’s how to access How Grain Buyers and Sellers Can Increase Profits with Basis Indexes from Cmdty
So what exactly is basis? Basis represents the spread between two related instruments and is most commonly used to express the relationship of cash and futures products. In financial markets, basis is commonly explained by interest rates and income streams. It is this dynamic that the whitepaper effectively helps readers to understand.
Basis tends to be strong during planting season and weakens during harvest, as supply grows and storage concerns increase. The whitepaper can help guide producers’ actions so that they can best profit from these insights.
“The opportunity in this scenario could be amplified further if basis is stronger than historical trends during the same period of the season,” said Michael Browne, Barchart’s Head of Commodity Sales. “In either case, the producer should consider one of two paths. First he could simply execute a forward ‘basis only’ contract with his local elevator, locking in the strong basis early in the season. He would then still be ‘long’ on his physical grain and could therefore sell futures for September or December in order to lock in the underlying price if favorable. Since basis and futures often move in opposite directions, it’s possible that the current high basis is offset by low futures compared to historical trends. In that case, the producer could sell his crop outright, early in the season, and replace the physical grain with buying a future to benefit from the upside. This method has the additional benefit of providing early season cash flow for inputs.”
The indexes outlined within the whitepaper represent the first benchmark data offering launched by cmdty, Barchart’s growing product line focused on facilitating workflows for commodity trading. These indexes sit alongside and within the flagship cmdtyView market data platform, which is the only platform with access to streaming news from cmdtyNewswiresSM , fundamental and economic data from cmdtyStatsSM, and Barchart’s proprietary cash grain data.
Specific user types that can benefit from cmdty Grain Price Indexes include:
- Producers: Learn to build historical seasonality models and quickly understand where pricing opportunities exist to get the best rates for your crop.
- Grain Buyers: Identify opportunities to profit from better information on cash and forward markets. Build best practices and capabilities that scale with the size of your operation.
- Market Advisory Services: Build highly scalable models to quickly automate the discovery of client recommendations for grain marketing.
- Ag Lenders: Decrease loan losses by using better information to guide decisions, and provide more transparency to your producers with objective reference prices.
- Processors: Quickly see where grain is under/over priced by region and delivery window with real-time forward curves and make better sourcing decisions.
- Trading Houses: Identify arbitrage opportunities across your grain buying/transportation network, and make decisions faster than ever before.
- Food Companies: Forecast demand, understand price, de-risk your supply chain, and ensure that you’re always getting a fair value with our objective pricing.
The document also looks at factors such as risk, farm-size growth, and expectations to best guide decisionmaking.
“With larger farm operations, it becomes increasingly important to have a sound risk management plan,” Browne said. “Risk can come from transportation interruptions, export competition from South America, Asia, Black Sea and other regions, interest rate risk and more. While devising a comprehensive risk management strategy for large farming operations is beyond the scope of this whitepaper, it demonstrates that analyzing historical trends in the cmdty Grain Index Family against our 12-month forward curves, can be a key input in determining how best to spot crop marketing opportunities, maximize profits, and limit risk in a volatile market.”
To learn more or talk with someone about the next step to improve profits this way, farmers, buyers, or market advisory services should call Browne at 612-618-5981 or email [email protected]. They should also ask their local elevator, broker, or commodity trading advisor if they are using Barchart’s basis indexes in their crop marketing strategy development for their clients.