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.
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.