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By Tori Uhland

December 8, 2023

I often mention certain contract months for commodities, such as “December corn” or “January soybean meal” and I understand that those terms may not mean much to some people, so I thought I might try to explain. With the end of November came First Notice Day for December contracts. It seems odd, but if you have corn that you are trying to sell during the month of December, that you also want to ship in December, you will be using the March futures contract price. However, if it is October and you are trying to sell corn that you want to deliver in December, your price will be based off the December futures contract.

I already feel a bit like I am talking in circles. Not all commodities trade the same futures months. For example, wheat and corn and soybean meal all have December contracts, but soybeans do not. Soybeans have both November and January contracts, and soybean meal doesn’t have a November contract, but it does have a January contract. For discussion’s sake, I’ll stick with the contract months that wheat and corn trade: March, May, July, September, and December.

If you are buying or selling grain ahead of time, it is good to know that grain traded for delivery in January, February, and March is traded off the March futures contract; grain for delivery during April and May is traded off the May contract; grain for delivery during June and July is traded off the July contract; grain for delivery during August and September is traded off the September contract; and grain traded for delivery during October, November, and December is traded off the December contract. What is generally considered the “new crop”’ wheat contract is July, and for corn it is December since those contracts include the harvest-time delivery months for most of the United States.

During the last week of the month prior to the contract month, (so for December contracts, it is November) there is what is called “First Notice Day.” First Notice Day is a date specified in a futures contract in which someone who has a long position in the market (they have bought a futures contract) may be required to take physical delivery of a contract’s underlying commodity. Many buyers and sellers in the futures market are speculators – there are many that wouldn’t have a clue what to do with a semi-load of corn if it showed up at their doorstep. Fortunately, that’s not exactly how it works, however I couldn’t do any justice trying to thoughtfully explain the delivery mechanisms in the futures market, so I am not going to try to do that today.

Because of the deliveries and risks associated with the futures market, this is why most people will want to be completely “out” (not short or long) of their December futures positions before the end of November. The investors in these commodities try to close out of their positions prior to First Notice Day because they don’t want to own the physical commodities, they just wanted to make money on the futures contract. This is also one of the reasons why the futures markets can have some really big swings and tend to be more volatile towards the end of the month – people are exiting their positions and could be selling off a lot of contracts to get rid of their “longs” so they don’t risk taking delivery.

While this may not be extremely important information, it may be helpful to remember the volatility factors at the end of the month if you have grain to price. There is always risk, but timing can be important. Waiting until the last minute can sometimes pay off, but it can sometimes cost a lot.

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