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The Cost of Forward Contracting in CIF NOLA Export Bid Market

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  • Isbell, Bradley
  • McKenzie, Andy M.
  • Brorsen, B. Wade

Abstract

Price risk management in the grain industry is typically done by hedging with forward contracts and futures contracts. An additional important price discovery and risk management “paper market” also exists in the form of CIF NOLA basis bids, traded through brokers. These bids function similar to traditional forward contracts, however, like a futures market, firms can offset their forward contractual obligations by offsetting positions in a liquid off-exchange paper market. Analysis shows that this liquidity mostly removes the pricing bias commonly found in forward contracting in corn and soybeans, although a small bias still exists in wheat and especially sorghum.

Suggested Citation

  • Isbell, Bradley & McKenzie, Andy M. & Brorsen, B. Wade, 2017. "The Cost of Forward Contracting in CIF NOLA Export Bid Market," 2017 Conference, April 24-25, 2017, St. Louis, Missouri 285871, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:n13417:285871
    DOI: 10.22004/ag.econ.285871
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    Cited by:

    1. is not listed on IDEAS
    2. Mohammad Hasan Mobarok & Wyatt Thompson & Theodoros Skevas, 2024. "Sensitivity of the United States crop basis and distribution network to precipitation," Agribusiness, John Wiley & Sons, Ltd., vol. 40(4), pages 908-925, October.
    3. Sandro Steinbach & Xiting Zhuang, 2025. "US agricultural exports and the 2022 Mississippi River drought," Agribusiness, John Wiley & Sons, Ltd., vol. 41(1), pages 289-303, January.
    4. Bradley Isbell & Andrew M. McKenzie & B. Wade Brorsen, 2020. "The cost of forward contracting in the Mississippi barge freight river market," Agribusiness, John Wiley & Sons, Ltd., vol. 36(2), pages 226-241, April.
    5. Kamrud, Gwen & Wilson, William W. & Bullock, David W., 2023. "Logistics competition between the U.S. and Brazil for soybean shipments to China: An optimized Monte Carlo simulation approach," Journal of Commodity Markets, Elsevier, vol. 31(C).

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