Hedge-To-Arrive Contracts  02/21/14 1:56:45 PM

Grain contract used in futures trading to allow a seller to lock in a futures price, but the basis level is not determined until later.  A seller may choose to use this type of contract when the futures price is high and are about to drop.

Example:

On April 1, December corn futures are trading at $7.00 and the current local basis for October delivery is 50 cents under the December futures.  The cash price would be $6.50 a bushel.  If by October the December futures has dropped to $6.00 but the basis has improved to 25 cents under the December futures, making the cash price $5.75.  Using this HTA contract, the final price would be $6.75.  The December futures were locked in on the contract at a price of $7.00 less the current basis of 25 cents. 

HTA Contract Advantages:

  • Ability to lock in the futures carry, leaving the basis open to gain on future basis appreciation.
  • The final basis can be established any time prior to delivery.
  • Can be used for direct ship bushels.

HTA Contract Risks:

  • The contract provides no opportunity to take advantage of higher futures prices.
  • The contract offers no protection in the event that basis levels drop or remain steady.

There is a 3 cent per bushel service fee on HTA contracts for 1st year crop, paid up front.  On 2nd year crop HTA contracts the service fee is 5 cents per bushel, paid up front.  It is the discretion of Prairie Ag Coop to limit contract bushels and producers.  Grain can be delivered to Prairie Ag Coop or to a direct ship terminal used by Prairie Ag Coop.  All direct ship bushels are subject to the discounts and policies of thos terminals. 

 
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