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Basic Contracting Options
Our current DP rate is $0.10/bu per month, prining deadline of 8/31/2016.
Flat Price Contract
You set the futures, basis, and delivery period on a certain amount of bushels.
- Ex: Fall Delivery:
- Dec corn for fall delivery is trading @ $3.70 and the basis is -.20 you will receive a check for $3.50 per bushel before discounts.
You determine a time in which you want to deliver corn and you set the basis level but, leave the futures unset.
- Ex: March delivery
- There is a bumper crop and most places are getting full; which tells you that basis levels will likely become negative (or the demand from the buyer will not be high). You feel however, that there is still upside in the market, and you know you can sell corn sometime in March. So you set the basis on March delivery period and wait on the market to go up.
- March corn has a +.20 basis and you set the futures @ $3.80. You will receive $4.00 cash before discounts.
Futures Contract or HTA
You set the futures price on a specific month, but you leave the basis unset. There is a fee associated with this option.
- EX: Fall
- You see that the July futures are trading @ $3.90 for next year, but the basis is -.15 cents. You decide to set the futures price but you wait to set the basis later on or when it gets close to a positive number.
- Once you set the basis level you will be paid out your cash price less any discounts and the HTA fee.
Minimum Price (Only Available to the Farmer)
Allows you lock in a set price on a specific time period and gives you unlimited upside potential penny for penny gains over your "strike price"
- Ex: May Minimum Price Contract
- Can be considered DP with a floor. There is a fee to write them; however you have unlimited potential for gains in the CBOT futures marke. Unlike DP, the Minimum price is already locked.
- We have multiple options that you can pick from, for this examples purposes, this person wants to deliver their corn in January (Jan cash price 3.83) and they want to use the July 4.20 option with the $0.29 fee for their strike price:
- You pick your delivery period – in this case January
We take the Jan cash price, and deducted the fee for the July $4.20 option. (3.83-.29 fee = $3.54)
The farmer is paid $3.54 upon delivery completion.
If on the expiration date (each option has it’s own expiration date tied to it), the futures close below $4.20, the option will expire worthless.
- On the flip side of that we have the Higher Market Scenario:
Same set up as far as prices and fees go, only this time On the expiration date, say the July futures closed at $4.60.
We then take the $4.60 - $4.20 (the option price you tied to) and you net back a $0.40 gain per bushel on this contract.
Please call Christine Poole, Michelle Patten, or Kendall Leatherman with any questions regarding these and other contracting options: 877-779-2676.