Grain Spreads And Storage

Question 1

Why do you use a calender spread?

Answer 1

So market participants can in the grains futures market can discover prices and manage their risk with growing and storing grains

Question 2

What do claneder spreads do?

Answer 2

Encourage storage when supplies are plentiful and encourage the movement of supplies to the commercial users that value them most when supplies are tight

Question 3

When do corn futures expire?

Answer 3

September, décember, March may and July

Question 4

The price given for a december futures contract represents….

Answer 4

The expected price in December

Question 5

What is a calender spread?

Answer 5

Buying a futures contract that expires in a month while simultaneously selling a futures contract for the same commodity that expires in a different contract month

Question 6

The price of a calender spread is…

Answer 6

The price difference at a given point in time between the two futures contract expiration months

Question 7

The December - March calender spread would be the difference in price…

Answer 7

Between the December futures contract and March futures contract

Question 8

What costs are involved in managing a grain warehouse?

Answer 8

It costs you money to store grain in your warehouse, electricity to elevate the grain, insect people to us pesticide

Question 9

What’s the decision of a grain warehouse manager?

Answer 9

Do I sell that ton of grain today on the cash market Or continue to store until tomorrow

Question 10

You would only make the decision to store grain longer…

Answer 10

If you think you will get a higher price in the future to compensate for storage costs

Question 11

What do futures spreads represent?

Answer 11

The December futures price represents prices expected in December. The March futures prices represent prices expected in March. Thus, the spread between December futures and march futures represents what the market is offering as compensation to store it from déc to March

Question 12

Spreads become wider….

Answer 12

Around harvest, when supplies are plentiful. It encourages storage.

Question 13

The spreads are too narrow…

Answer 13

The market is not paying enough to store the grain. Warehouse managers start selling grain which depresses the nearby futures price

Question 14

Deferred prices rise if….

Answer 14

There will be less inventory available in the future

Question 15

Deferred prices will continue to rise until….

Answer 15

The buyers in the market get exactly the amount of grain today and can store some for the future

Question 16

Late in the crop year, when supplies of grain become short…..

Answer 16

The spreads narrow to discourage storage

Question 17

When would users of grain bid up the nearby price and narrow the spread?

Answer 17

If the spreads are too wide and supplies are short to encourage the selling of grain out of storage

Question 18

What happens if the supplies of grain are WAY TOO SHORT

Answer 18

Futures prices invert meaning that the nearby price is greater than the deferred price

Question 19

When would miller’s or exporters be storing at a loss?

Answer 19

If the market charges the exporters to store rather than paying them too - when nearby price is greater than deffered price

Question 20

A calender spread…

Answer 20

Is simultaneously purchasing and selling the same product contract with different expiration dates

Question 21

The spread between December futures and march futures…

Answer 21

Represents what the market is offering to store grain from december to March

Question 22

Who would use a calender spread?

Answer 22

To see if it is worth hanging on to grain for a couple of extra months. The difference between the two contracts you buy and sell in the same commodity tell you storage is even worth it.