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Downside to Delayed Price contracts
The director of brokerage for CHS Hedging cautions farmers considering Delayed Price contracts.
Delayed or deferred pricing allows farmers to deliver grain now and price later to free up storage space while waiting for markets to improve.
Sean O’Toole says interest rates are a major factor in grain marketing right now.
“It used to be that just selling deferred price and just waiting for the Board to come to you was a strategy, (in fact) it is still a strategy (but) an expensive strategy because DP rates are high. The monthly rates on DP are going up because costs at the elevator are going up.”
He tells Brownfield a better strategy would probably be buying call options.
“Selling the crop, setting a floor at your price, and then turning around and buying call options. Or using a product at the elevator (like) if the elevator has a minimum price contract, stepping into a minimum price contract.”
O’Toole says those are ways to take advantage of current market lows.
Brownfield interviewed O’Toole during Trade Talk at the 2023 National Association of Farm Broadcasting Convention in Kansas City Thursday.
This is an expected response from someone who sells contracts for a living. Contracts come with a price and a commission for the broker who is selling them. The DP contract comes with a price less than traditional storage, no commission, and more upside potential than the call option. It is not wasted money…..the call option is absolutely a gamble that the buyer hopes will pay off.