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In the examples so far, the producer has been trading in quantities of 5000 bushels, which are hedged on a 1:1 ratio with CBOT grain futures as the underlying contract unit is also 5000 bushels. When cash bushel increments of less than a standard futures contract are transacted, the Hedge Account Balances and Hedge Account Balances Details windows track these smaller unhedgeable 'tails' of bushels. In this example, the merchandiser is bid - .10 (basis) under over the CBOT July Wheat September Soybean 2024 futures. The bid has been created and published and is now producer facing.
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Now, producer ‘SouthernCoop Farmer2’ is looking to sell 2000 bushels at the prevailing price for the ‘Old Crop Soy’ bid.
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Once the offer is created, a notification will display in the platform and the orders panel will update with cash transaction.
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The Hedge Account Balances window updates with a new cash position (if no current orders have transacted or are working).
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You will notice with 2000 cash transacted, no futures hedge has been placed. As a default, the minimum threshold set to offset a cash position is 51% of the underlying contract unit of a standard CBOT grain futures contract (Contract unit 5000 bushels * .51 = 2550 bushels). This can be configured differently for each customer for risk management purposes. If this particular producer or another producer that conducts business with the merchandiser sells any quantity of cash grain greater than or equal to 550 bushels (2550 - 2000) a September 2024 Soybean futures hedge will be automatically sold. Here, another producer has sold 1000 bushels on the ‘Old Crop Soy’ bid, the Hedge Balances and Hedge Balances panels both update with the cash and futures hedges.
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In the above, note the ZSU23 ‘Hedge Balances’ position has gone from +2000 to -2000. Before the second transaction, the elevator was long 2000 cash. With the additional 1000 bushels of cash transacted, a ZSU23 futures contract was sold and the offsetting 5000 bushels (futures underling) are taken into account (3000 bushels cash - 5000 bushels future).