Sell Cash/Buy Call Sell Cash/Buy Futures Cash Sale Need Money Like Price Sell Cash (in bin) Delayed...
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Transcript of Sell Cash/Buy Call Sell Cash/Buy Futures Cash Sale Need Money Like Price Sell Cash (in bin) Delayed...
Sell Cash/Buy CallSell Cash/Buy Futures
Cash Sale
Need MoneyLike Price
Sell Cash (in bin)
Delayed Price
Basis Fixed
Waiting forBetter Price
Store Grain
Sell Futures
Buy Put Option
Hedge to Arrive
Scale Up StrategyLike Price
Sell Production
Marketing Decisions
Components of Cash Prices
Futures Price Basis
Futures
Basis
Cash
Basis - Flat Basis - Flat
Futures - HigherCash - Higher at same rate as Futures
Futures - Lower
Cash - Lower at same rate as Futures
Futures
Basis
Cash
Picking the Proper Marketing Tool
ExpectedChange
Basis Basis WeakenStrengthen
Futures Prices
Up
Down
Expect Stronger Basis Higher Futures
Expect Stronger BasisLower Futures
Expect Weaker BasisHigher Futures
Expect Weaker BasisLower Futures
Store Grain
Delayed Price Contract
Sell FuturesBuy a Put Option
Sell Futures/Buy a Call
Basis Fixed Contract
Sell Cash/Buy Call
Sell Cash/Buy Futures
Sell CashForward ContractFutures Prices
Cash Contract Requirements
All contracts require delivery A delivery period is established Futures and/or basis must be monitored to
maximize potential
Cash Sale / Forward Contract: Sell Cash (in bin)
Month / Day ________ Sell Cash
__________Today’s Bid
Del. Month ________ Sell Cash
________ Forward Price
Futures
Basis
Cash
Basis - Lower
Futures - Lower
Cash - Lower faster than Futures
Plain English:The grain is sold to the elevator for delivery now, or at a later date.
Store Grain / Delayed Price Contract: Store Grain
Store grain in the elevator or on farm.
Service Charge______ Final Price:
Futures Price________Basis
________ Service Ch. ________ Final Price ________
Futures
Basis
Cash
Basis - Higher
Futures - Higher
Cash - Higher faster than Futures
Plain English:The producer or the elevator holds the grain until the decision is made to sell.
Basis Fixed Contract:Store Grain
Delivery Period______ Futures Month ______ Basis Fixed ______ Final Price:
Futures Price ______Basis
______ Final Price ______
Futures
Basis
Cash
Basis - Lower
Futures - Higher
Cash - Higher slower than Futures
Plain English:A basis level and a delivery time are established. Generally, the futures must be priced near the delivery time. May be for deferred delivery, but normally a spot contract.
Buy a Call Option:Sell Cash (in bin)
Sell Cash ________ Futures Month to Reown
________ StrikePremium
Buy Call ______ ________ Min. Price: Cash Price
________ Premium________ S.
Charge ________Min. Futures
________ Futures Option Min. Final
@ Exp. Gain Cash Price
______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______
Futures
Basis
Cash
Basis - Lower
Futures - Higher
Cash - Higher slower than Futures
Plain English:The producer sells cash grain and purchases a call option through his broker.
Buy Futures:Sell Cash (in bin)
Sell Cash ________ Futures Month to Reown
________ Futures price to Reown
________Futures
Basis
Cash
Basis - Lower
Futures - Higher
Cash - Higher slower than Futures
Plain English:The producer purchases futures through his broker.
Sell Futures / Hedge-To-Arrive: Sell Production
Delivery Period_____
Futures Month_____
Futures Price_____ Basis (-)
_____Fix on or before
delivery S. Charge(-) _____
Final Price _____
Futures
Basis
Cash
Basis - Higher
Futures - Lower
Cash - Lower slower than Futures
Plain English:The producer or elevator hedges the grain in the brokerage account, fixing the futures price. Generally used for forward pricing as the basis must be fixed prior to delivery.
Buy a Put Option: Sell Production
Delivery Period _______ Futures Month _______ Minimum Futures Price: Strike
- Premium = Min.Price______ - _______ = _______
(Buy Put Option)
Final Price:Min. Price_______Futures _______
Basis _______ S. Charge
_______ With Minimum Price
_______ With Futures Price
_______
Futures
Basis
Cash
Basis - Higher
Futures - Lower
Cash - Lower slower than Futures
Plain English:The producer purchases a put in the brokerage account.
Contract FuturesEstablished
BasisEstablished
StorageCost
Quality Risk Cash Flow
Cash Sale/ ForwardContract Yes Yes
UntilDelivery
UntilDelivery
Upon Delivery
Futures Fixed/Hedge to Arrive Yes No
UntilDelivery
UntilDelivery
Upon Delivery
Store GrainNo No
UntilDelivery
On FarmStorage None
Delayed PriceNo No None None
Depends onElevator
Minimum PriceSell Cash/Buy Call Yes Yes None None
Upon Delivery
Min Futures PriceBuy Put
MinimumFutures No
UntilDelivery
UntilDelivery
Upon Delivery
Min/Max-Sell CashBuy Call/Sell Call Yes Yes None None
Upon Delivery
Min/Max FuturesBuy Put/Sell Call
Min&MaxFutures No
UntilDelivery
UntilDelivery
Upon Delivery
Premium Offer MaximumFutures No
UntilDelivery
UntilDelivery
Upon Delivery
Basis FixNo Yes None None
Depends onElevator
Market Decisions