Pre-spreading is about locking in spread structure that will support your merchandising plans. (e.g., if you plan to carry grain you need a carry spread structure). It’s best viewed as a defensive or protective maneuver – you are taking a good number now to avoid the possibility of taking a bad one later.
- What does any particular spread number mean to me?
You have a measurable cost of holding grain and any spread can be measured against that. (e.g., if it costs you 12¢ to carry grain for 8 months, a 24¢ spread is 200% of your cost) This is the practical impact of the spread on your merchandising and should carry a heavy weight in the decision.
- What is the reasonable potential for a given spread?
While spread management isn’t about predicting spreads, it’s important to have some context for how wide a spread might get. History, the current environment (crop, prices, and interest rates), and the “full carry” calculation all play a role in providing context.
20% @ 200% of carry (or ~40% of full carry)
|Review orders on the 15th of each month and revise as/if necessary|
This example plan is a guideline based on the current environment – the best plan is one you make for yourself.