What is a to arrive contract?

What is a to arrive contract?

In commodities fraud: Early futures trading. The immediate predecessor was the “to-arrive” contract. This was simply a contract for the purchase of goods upon their arrival. For example, ship cargoes were often sold before their arrival in port on a “to-arrive” basis.

What are two risks associated with using a HTA contract?

Basis on wheat usually narrows into harvest. If you sell grain using an HTA contract, the elevator makes the margin calls if prices move higher. HTA contracts to avoid making margin calls, you may find a rude surprise at the end of the transaction if you are wrong. Use a broker for that purpose, not the elevator.

How do grain contracts work?

A grain futures contract is a legally binding agreement for the delivery of grain in the future at an agreed-upon price. The contracts are standardized by a futures exchange as to quantity, quality, time, and place of delivery. Only the price is variable.

How does hedging work?

The Hedge-to-Arrive (HTA) grain contract offers you the choice to lock in only the futures reference price portion of your cash contract for a specific quantity to be delivered in the future. The basis can be set at a later date, but must be done prior to delivery.

What is a hedge to arrive?

A hedge-to-arrive contract allows the producer to lock in a futures price with the elevator, leaving the basis to be set at a later time. The elevator will establish a hedge in futures on your behalf in exchange for delivery of the cash commodity at a set time.

Can you buy out of a grain contract?

Getting out of cash forward contracts is possible, but it could end up costing you.

What is a forward grain contract?

Forward cash contracting involves a commitment to deliver corn to a grain buyer at some future time. Both alternatives can be used to: price before or after harvest; establish a return for storage; and reduce price risk.

What happens if you don’t complete grain contract?

Poverty mentality about grain values is and has been very costly, over the last 6 years. Now if you can’t fill your contract and don’t have the cash to buy out of it, you will be transfering equity to the buyer in the form of borrowed money or other assets.

What is Price later grain contract?

Price Later (Delayed Pricing/DP) Contracts A price later contract allows the producer to establish final pricing at a later date. Payment is made in full when grain is priced. Upon delivery, the title of the grain passes to the buyer. A price later contract will be issued after delivery is complete.

What does hedge to arrive mean?

hedge to arrive contract. Definition. Contract used in futures trading where the futures price is determined when the contract is created, but the basis level is not determined until later, usually just before delivery. A hedge to arrive contract is typically used for commodities such as grain.

What is grain basis contract?

• Basis contract – An agreement in which grain is delivered and legal title passes to the elevator. The agreement establishes the basis but not the futures price. The producer later selects the day on which he/she wishes to establish the futures price.

How do basis contracts work?

In a basis contract you establish a price on the spread between the cash and the futures market. A basis contract is done when the spread is normal or narrower than normal, or when one thinks the basis will widen into the time frame one wishes to sell.