Standard Contracts
CASH (SPOT) Contract
- Grain priced at the end of the delivery day
- Local Spot price: closing cash price on the day of delivery
- Cash Price: CBOT futures +/- your location’s bid price
Reasons to use:
- Price grain when: Production is known & at time of delivery
- Harvest storage prices and extra shrink: Eliminated
Risks:
- May miss attractive available pre-delivery prices
- Prices could rally after grain is priced
Bearish Bias
Forward Contract
- Producer locks in a guaranteed price for grain at a specific time and delivery location
- Futures and basis are set at the same time
- Payment occurs upon delivery or can be deferred to a new tax year
Reasons to use:
- Locked price for forward delivery
- Eliminated downside price risk
Risks:
- No opportunity to take advantage of market upsides
- Possibility of over contracting
Bearish Bias
Futures Only/Hedge to Arrive Contract
- Set the futures only component for a delivery period: wait to set basis component
- Basis component is set prior to delivery & delivery is required
- Quantity, grades, and delivery month determined at contract creation
Reasons to use:
- Feels futures market is attractive and hopes for appreciation in basis
- Potential delivery flexibility between delivery locations
Risks:
- Futures price may rise
- Basis may deprecate
- Possibility of over contracting
Bearish Futures Bias
Bullish Basis Bias
Basis Contract
- Lock in basis component only for set delivery period and location
- Futures price is set at a later date which locks in final cash price
- Can request 70% advance of expected grain value upon delivery before futures value is established
- Contract priced prior to first notice day of futures month basis is tied to
Reasons to use:
- Feel basis is attractive
- Opportunity to take advantage of the advancement for cash flow
Risks:
- Futures price may deprecate in value
- If advanced cashflow is taken upon delivery, futures could fall below advanced portion
Bullish Futures Bias
Bearish Basis Bias
View Standard Contracts
Cash (SPOT) Contract
Forward Contract
Future Only/Hedge to Arrive Contract
Basis Contract
Accumulating Average Contracts
Accumulating Average Contract
- Forward selling a % of bushels every day for a specified delivery period
- Can be customized to fit specific operational needs upon expiry of trade, this contract results in an HT
Reasons to use:
- Is priced historically peak time frames
Risks:
- Price may RISE after the average contract price is established
- Pricing period could be unfavorable and established average price is below breakeven
Bullish Selling Period Bias
Accumulating Average Contract with a Floor
- Accumulating Average Contract + setting a strike level for a floor
- Sells a % of bushels every day for a specific period
- If market is at or below strike, bushels sold at the strike price
- If market is above strike, bushels are sold at a higher level
Reasons to use:
- Eliminated risk of any major price drop that could happen over pricing period
- Ease of execution with protection of floor
Risks:
- Prices can rally after pricing period and after establishing average price
- Prices may not rise high enough over the pricing period to offset fee for establishing the floor
Bearish to an extent to have a floor on futures
Bullish Selling Period
View Accumulating Average Contracts
Accumulating Average Contract
Accumulating Average Contract with a Floor
Options Contracts
Minimum Price Contract
- Contract is a grain sale + buying an option
- Purchase cost of the option is deducted from grain contract
- Purchase of the option allows upside potential to your minimum price based on your bias
- Established a minimum cash price received for grain
Reasons to use:
- Eliminates downside risk, limited to options premium, while participating in upside price movement
- Stop storage or prices later fees on delivered grain
- Minimum price option can be rolled to capture more time
Risks:
- Futures price movement is after the option expires
- Futures price does not move toward your bias
- Option can expire worthless
Premium Offer Contract
- Sell grain while selling a call option to gain a premium on price received
- A potential double up in bushels at a specific strike and for a specific delivery
Reasons to use:
- Gives the producer a premium for bushels sold
- Premium is most valuable if the market is neutral or bearish
Risks:
- Futures price rally at time of option expiration
- Potential double up on bushels at a specific strike and for a specific delivery
Neutral/Bearish Market Bias to an extent
View Options Contracts
Minimum Price Contract
Premium Offer Contract
Accumulator Contracts
Accumulator Contract
- Establish a CBOT Futures level that is above current CBOT level through options
- Contract accumulates by uniform increments over the pricing period
- Contract variations: accumulation level, knockout level, and double up factors
- After pricing period, HTA is established based on specifications and the set price of grain
Reasons to use:
- Price grain at a premium above current market prices
- Can be structured to fit marketing bias
- Do not need a minimum of 5,000 bushels
Risks:
- Potential for double up risk, either for each pricing period, or at the end of a period
- Contracts could be knocked out without additional pricing if prices decline
Neutral/Bearish Market Bias to an extent
View Accumulator Contracts