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How Does “Rolling” A Grain Contract Work?

Rolling a grain contract is not something that is done by choice, nor do grain elevators offer this as a standard option for marketing. What rolling serves the function of is being a last resort option to closing a contract that cannot be fulfilled.

There is often a misconception that when rolling a contract that the grower can just deliver the crop at a later time when they have it and get paid the contract amount. Of course this is not the case.

When a grower cannot deliver the physical contracted grain and cannot settle the difference in cash they are faced with a “rolling” situation. In this situation it must be understood that the elevator is essentially absorbing the negative (or positive) equity in the contract and deferring the growers obligation to absorb that to a different crop year. Of course the grower will still realize the full impact of contracts gain or loss, just at a different point in time. To use a common phrase this is basically “kicking the can down the road” whereas the inevitable is being delayed.

The numbers to create a roll work differently depending on what each individual elevator has in their contract default policy. What should be made clear is that the loss is not just the exact difference between the contracts cash price and the current spot market. For example if you forward contracted corn for June at $210/T and the spot price come June is $230/T, the negative equity is not only the $20/T difference that many folks assume. The change in futures, change in basis, and change in currency values all impact what the roll will cost the grower, or by how much the roll will benefit the grower.

Growers should always ask their elevator for the calculated break down of the roll price to fully understand why the roll is costing what it is costing. Better yet, growers should be asking their elevators how exactly their rolling works before entering into a contract all together. It’s a 2 minute conversation that could save thousands of dollars. Below is a simple example of a contract with negative equity.

Contract Details

Contract Made For June2020: $263.27/T
Futures: $5.00
Basis: +$0.35
Currency: $0.80

Spot price at time of roll

Spot Price June2020: $319.87/T
Futures: $5.85
Basis: +0.65
Currency: $0.80

Spot Price:$246.05
Futures:$4.80
Basis:$0.20
Currency $0.80