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