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Forward Contracting Costs for Illinois Corn and Soybeans: Implications for Producer Pricing Strategies

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  • Stringer, Chris
  • Sanders, Dwight

Abstract

The implied costs of forward contracting Illinois corn and soybean prices at planting-time are estimated. Thirty years of basis data are collected for seven regions in Illinois. Forward basis quotes are collected at planting-time (May) and actual basis levels are recorded at harvest time (October). Costs embedded in the forward basis quote are estimated and the implications for producer marketing strategies are examined. The results suggest that elevators' embedded premium-producers' cost of forward contracting-are rather small, especially for corn. Forward contracting costs vary significantly across the state. Implications for producer risk management strategies are explored.

Suggested Citation

  • Stringer, Chris & Sanders, Dwight, 2006. "Forward Contracting Costs for Illinois Corn and Soybeans: Implications for Producer Pricing Strategies," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2006, pages 1-8.
    • Handle: RePEc:ags:jasfmr:190691
    DOI: 10.22004/ag.econ.190691
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    References listed on IDEAS

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    1. Shi, Wei & Irwin, Scott H. & Good, Darrel L. & Hagedorn, Lewis A., 2004. "The Cost Of Forward Contracting," 2004 Annual meeting, August 1-4, Denver, CO 20409, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. B. Wade Brorsen, 1989. "Liquidity costs and scalping returns in the corn futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 9(3), pages 225-236, June.
    3. Ray D. Nelson, 1985. "Forward and Futures Contracts as Preharvest Commodity Marketing Instruments," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 15-23.
    4. Tomek, William G. & Peterson, Hikaru Hanawa, 2000. "Risk Management In Agricultural Markets: A Survey," 2000 Producer Marketing and Risk Management Conference, January 13-14, Orlando, FL 19580, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Townsend, John P. & Brorsen, B. Wade, 2000. "Cost of Forward Contracting Hard Red Winter Wheat," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 32(1), pages 89-94, April.
    6. George F. Patrick & Wesley N. Musser & David T. Eckman, 1998. "Forward Marketing Practices and Attitudes of Large-Scale Midwestern Grain Producers," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 20(1), pages 38-53.
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    Cited by:

    1. Taylor, Mykel & Tonsor, Glynn & Dhuyvetter, Kevin, 2014. "Structural Change in Forward Contracting Costs for Kansas Wheat," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(2), pages 1-13.
    2. Xiaoli L. Etienne & Mindy L. Mallory & Scott H. Irwin, 2017. "Estimating the cost of pre‐harvest forward contracting corn and soybeans in Illinois before and after 2007," Agribusiness, John Wiley & Sons, Ltd., vol. 33(3), pages 358-377, June.
    3. Karen E. Lewis & Ira J. Altman & Mark R. Manfredo & Dwight R. Sanders, 2015. "Risk Premiums and Forward Basis: Evidence from the Soybean Oil Market," Agribusiness, John Wiley & Sons, Ltd., vol. 31(3), pages 388-398, June.
    4. Bradley Isbell & Andrew M. McKenzie & B. Wade Brorsen, 2020. "The cost of forward contracting in the Mississippi barge freight river market," Agribusiness, John Wiley & Sons, Ltd., vol. 36(2), pages 226-241, April.

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