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Marketing questions from farmers

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Is it time to roll low priced HTA contracts?

Roger,

I have some cheap corn HTAs with poet that I have been rolling to keep from delivering. They just told me they will not allow me to roll them past March 23.  They are from last year when I was short corn. Without knowing their fine print, is this something they can do?  Keep me from rolling further? Thank you, Sir.

Short answer: Yes.

There is no rule or regulation of the Commodity Futures Trading Commission (CFTC) nor the Iowa Department of Agriculture which forbids or limits a grain buyer from rolling HTA's to deferred months. However, just as you can make rules about selling your hay and honey that do not contradict state or federal regulations, merchandisers can make what are called "house rules," which do not adhere to any regulatory requirements, but are simply their policy of conducting business.

Likewise, there is no regulatory statute that requires a merchandiser to roll a HTA forward. If the contract does not specifically say you can roll the HTA an unlimited number of times (which it most certainly does not), you do not have any legal ground to stand on.

The reason they want the corn delivered is they have margin money tied-up in these contracts. Since the price of the HTA is below market price, they have covered (as required by law) your loss with their cash in their futures account for your hedge. The only way they will get that money back is for the futures to go lower or you deliver the cash corn so they can sell it as ethanol and DDGs to recover their hedge loss. 

House rules are negotiable

Everything related to house rules is negotiable. You could ask them what you would have to do to postpone delivery. They may say write a check for the hedge loss, or pay 15 cents roll fee, or contract another 40,000 bushels of corn, etc.

It does not cost anything to ask and they make an offer you like better than delivery no later than March.   

For the bigger picture, you want to deliver the corn on those low HTA values when corn futures are as low as possible to minimize the loss. If you think prices will be lower in the coming months than they are now, you want to postpone delivery as much as possible until you think the price has bottomed. If you think prices will be higher in March or later, you should deliver now and put the corn on a basis contract or sell the corn and buy futures or write a put to recover some or all of that money lost on the low priced HTA contracts.

If you think December corn will be less than $6 a year from now, you should ask Poet to write a December $6.00 call for 55 cents and add the premium to these HTA contracted prices. The potential hook is if December corn is above $6.00 on December 22, 2023, you will have the same number of bushels on a $6.00 HTA for 2023 corn. You keep the 55 cents no matter what the price of December corn is on December 22, 2023. How bad is that? I know several Poet locations offer that marketing tool.    

For information about rolling HTA contracts to the next crop year, check out this page.  

 

Wright is an Ohio-based grain marketing consultant. Contact him at (937) 605-1061 or rjw1249@wrightonthemarket.com. Read more insights at www.wrightonthemarket.com.

No one associated with Wright on the Market is a cash grain broker nor a futures market broker. All information presented is researched and believed to be true and correct, but nothing is 100% in this business. The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

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