GRAIN CONTRACTS

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GRAIN CONTRACTS

GRAIN CONTRACTS

Managing market risk can be daunting, whether you’re a seasoned user of marketing contracts or just beginning to use grain pricing tools. For more details, contact your local Grain Marketing Specialist.

Not sure which program would be best for you? Check out our Grain Marketing Contract Menu to see what’s available.

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CONTRACTS

BASIS

  • Deliver grain while maintaining some pricing flexibility.
  • Capture a historically narrow basis level.
  • Or, move grain while awaiting an expected CBOT rally.
  • Delivery date, quantity, and basis* established by the contract.

*Basis price level expressed in cents per bushel above or below the CBOT futures for a specified futures month. A final price is set by fixing the CBOT level during CBOT trading hours.

BASIS CONTRACT

    • Deliver grain while maintaining some pricing flexibility.
    • Capture a historically narrow basis level.
    • Or, move grain while awaiting an expected CBOT rally.
    • Delivery date, quantity, and basis* established by the contract.
    *Basis price level expressed in cents per bushel above or below the CBOT futures for a specified futures month. A final price is set by fixing the CBOT level during CBOT trading hours.

    Basis contracts must be priced before the CBOT delivery month. A basis contract may be rolled ahead to offer more pricing flexibility. In that case, basis will be amended by the spread between the two futures months, and a small service charge will be assessed.

    Plus factors:
    • Risk of basis downside eliminated.
    • Opportunity to take advantage of future CBOT rallies.
    • May avoid weak harvest basis or low flat price.
    • 70% advance on contract value possible after delivery.
    • Buyer assumes quality liability.
    • Eliminate storage or price later charges.
       
    Potential drawbacks:
    • Future basis improvements cannot be realized.
    • You remain subject to risks of CBOT fluctuations.
    • Requires knowledge of local historical basis.
    • 5,000 bushel increment in the contract.
    • If the market drops sharply, it may be subject to a margin call if you take and advance.
FIXED PRICE

  • Grain is sold for delivery now or at a later date.
  • Use when cash price meets your objective.
  • Both futures and basis may be favorable or one may be significantly stronger to compensate for weakness in the other.

FIXED PRICE

    • Grain is sold for delivery now or at a later date.
    • Use when cash price meets your objective.
    • Both futures and basis may be favorable or one may be significantly stronger to compensate for weakness in the other.

    Plus factors:
    • Easy.
    • Payment is immediate.
    • Risk of price decrease eliminated.
    • No storage costs.

    Potential drawbacks:
    • Futures and basis both locked in.
    • Delivery is required.
    • Future market rallies inaccessible.
PREMIUM

  • Allows you to capture a premium for your grain.
  • You keep the premium regardless of the option expiration outcome.
  • Must be done in 5000 bushels increments
  • Security of a floor to protect against lower prices

Premium

    • Allows you to capture a premium for your grain.
    • You keep the premium regardless of the option expiration outcome.
    • Must be done in 5000 bushels increments
    • Security of a floor to protect against lower prices

    Plus factors:
    • Receive payment according to cash flow needs or tax advantage.
    • No storage charges or fees.

    Potential drawbacks:
    • Contract defines payment date.
    • Money held by buyer.
FUTURES FIRST

  • Lock in the Futures Price, while leaving the basis and delivery point open.
  • Unlimited # of rolls within the same crop year to capture carry and/or basis improvement in the deferred months.
  • No commodity accounts needed, or margin calls required.

FUTURES FIRST

    • Lock in the Futures Price, while leaving the basis and delivery point open.
    • Unlimited # of rolls within the same crop year to capture carry and/or basis improvement in the deferred months.
    • No commodity accounts needed, or margin calls required.
      • /ul> *Market may pay more for grain delivered later. If the forward price is greater than the current price plus storage and interest, locking in the higher price could benefit the producer.


      Plus factors:
      • Easy
      • Stops price decrease risk.
      • Can lock in the carry.

      Potential drawbacks:
      • No money before delivery.
      • Both futures and basis locked in.
      • Lose ability to capitalize on market rally.
      • Delivery is required.
      • Possible penalty for cancellation.
EXTENDED PRICE

  • Allows you to stay in the market, while at the same time generate cash flow.
  • Will advance up to 70% of the contract price, once bushels have been delivered.
  • Must be done in 5000-bushel increments.

OFFER

    • Allows you to stay in the market, while at the same time generate cash flow.
    • Will advance up to 70% of the contract price, once bushels have been delivered.
    • Can be used for grain in the elevator or grain to be delivered.
    • May be in effect for a day or for months at a time.

    Plus factors:
    • Eliminates need to constantly watch markets.
    • Captures short-lived daily rallies.
    • Solidifies your marketing goal.
    • Can apply to any price or any quantity.
    • Use to price cash, stored, or new-crop grain.
    • Cancel at time prior to offer being filled.

    Potential drawbacks:
    • Additional gains will not accrue when market rallies beyond the offered price.
    • When offers are set at even dollar amounts, opportunities can be missed. (Market may rise to just short of offer, then fall again.)
PRICE LATER

  • Also known as Delayed Pricing or No Price Established Contract.
  • Service charges fluctuate with market.
  • Title passes to buyer on delivery.

PRICE LATER

    • Also known as Delayed Pricing or No Price Established Contract.
    • Service charges fluctuate with market.
    • Title passes to buyer on delivery.

    Plus factors:
    • Avoid low harvest prices.
    • Reduced need for on-farm storage.
    • Maintaining quality becomes buyer’s responsibility.
    • Grain can be moved at seller’s convenience.

    Potential drawbacks:
    • Possible price risk due to basis and CBOT fluctuations.
    • Grain must be priced before payment.
    • Grain may not be used as collateral for CCC loans or LDPs.
CFS MANAGED

  • Diversify and take some of the emotion out of grain marketing.
  • Allows more time to focus on other aspects of your operation.
  • Still maintain control over delivery location, securing basis, and other offerings CFS has CFS pricing occurs according to market conditions, during the pricing time frames.

STORAGE

    • Deliver grain and maintain ownership.
    • Elevator monitors grain quality.
    • With a warehouse receipt, this grain qualifies for CCC loan or as other loan collateral.

    Plus factors:
    • Keep title to grain.
    • Quality risk passes to elevator.
    • Avoid historically low harvest prices.
    • Can transfer grain after storage and loadout charges are paid.

    Potential drawbacks:
    • Cost of storage may exceed market spreads.
    • To acquire warehouse receipt, storage charges and discounts must be paid.

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