Marketing Programs  08/04/17 9:04:23 AM

Cash Price = Futures +/- Basis
 
AgriVisor Insight™ Insight is an innovative cash grain contract that allows you to choose between AgriVisor, Doane, ProFarmer and Roach Ag to price grain on your behalf.  This product prices 100% of your enrolled bushels by September 15th of the selected crop year.  Go to www.agrivisor.com for more details. 
   
Basis Contracts How a BASIS Contract works:
  • It allows the producer to secure an attractive basis level while waiting for improvements in the futures price.
  • It establishes a quantity and delivery period for your grain.
  • The final cash price is determined when the producer locks in the futures price.
  • Contracts may be rolled forward to take advantage of inverted markets.
  • Basis contracts may be entered into for future delivery of grain.

Reasons to use a BASIS Contract:

  • When a producer wants to stay in the futures market, but feels the basis level is attractive.
  • It provides opportunity to take advantage of advances for cash flow.

Risks of BASIS Contracts:

  • The basis level may improve after establishing the contract.
  • The futures price may decrease while the contract remains unpriced.
  • After receiving the 70% advance, the futures price may decrease; this would require the producer to repay a portion of the advance back to bring the value back to 70% of the contract.

Opportunities of BASIS Contracts:

  • It establishes quantity and delivery period for the grain.
  • Producer may benefit from futures rallies in the market.
  • Producer may roll the contract forward to take advantage of inverses in the marketplace.
  • Producer may generate cash flow through the 70% advance.
   
Forward Contracts Forward contracts are the most commonly used contracts.  These contracts are for the cash sale of grain at a specified price for future delivery.

How FORWARD Contracts work:

  • Locks in a guaranteed price today for grain delivered in the future.
  • The futures price and basis portions are established at the same point in time.
  • Payment occurs upon delivery or can be deferred into a new tax year.
  • Establishes a price in advance of delivery.
  • A forward contract establishes the value of the grain that day.

Reasons to use FORWARD Contracts:

  • When a producer feels the price is attractive and returns on investment are positive.
  • It assists in establishing cash flow for production costs.
  • It allows the producer to establish a market price prior to production or delivery.

Risks of FORWARD Contracts:

  • No opportunity to take advantage of improvements in the basis or futures price.
  • The producer is obligated to deliver the quantity and quality of grain specified in the contract and is not protected from production risks.
  • The deferred price may not cover the cost of keeping the grain on the farm.

Opportunities of FORWARD Contracts:

  • Establishing a cash price eliminates your downside price risk.
  • Relatively simple and easy to understand.
  • No storage charges will apply to the grain delivered.
  • Storage charges are stopped if the grain is transferred from a storage contract to the cash sale contract.
  • Timing of delivery will assist the producer in scheduling grain movement.
   
Delayed Price (DP) Contract DP Contracts transfer the title of the commodity from the producer to the buyer, with the price to be determined at a later date.
   
HTA Contracts Hedge-To-Arrive (HTA) contracts are offered for certain future delivery months.  Please contact your nearest WGM location for current HTA contract service charges.

How a HTA Contract works:
  • It reserves a futures price without specifying the basis level for a futures delivery period.
  • It establishes the quantity and estimated delivery period.
  • Basis pricing may be done at any time before delivery.

Reasons to use a HTA Contract:

  • Producers who want to lock in the carry in the futures market.
  • Producers who know their production costs and profit margin requirements.
  • Producers who track local basis levels.
  • When a producer wants to lock in an attractive futures price but feels the basis level will improve prior to delivery.
  • Allows flexibility on delivery location and delivery month.

Risks of HTA Contracts:

  • The futures price increases after the contract value is set.
  • The basis level decreases after futures are established.
  • The physical commodity cannot be delivered until the basis level is established.

Opportunities of HTA Contracts:

  • Allows for additional time to take advantage of improvements to the basis.
  • Reserves space at the elevator or terminal for delivery of grain.
  • Allows the producer to avoid downside risk in the futures price.
   
Offers How OFFERS work:
  • An Offer is an order for the sale of a specified amount of grain if the market reaches a desired price level within a given period of time.
  • It can be used to create a Forward Pricing contract or to apply a futures price to a Basis Contract.
  • Use an Offer for grain that was previously delivered to a Storage or DP Contract or for grain that will be delivered in the future.

Reasons to use OFFERS:

  • A producer who does not have the opportunity to closely follow the marketplace.
  • In times of extreme volatility in the marketplace, Offers can be reached.  A producer will establish the quantity, delivery period, and target price.  Offers are considered to be "good until cancelled or filled" unless told otherwise.
  • Producers who want to lock in a price.
  • Provides the flexibility to change the price set in the Offer.

Risks of OFFERS:

  • The market may reach the Offer price and continue to increase after the order has been executed.
  • The market may not reach the Offer price, resulting in no sale taking place.
  • The market may reach a level close to the Offer price but not reach the price.

Opportunities of OFFERS:

  • Instills a sense of discipline into a marketing plan by removing the emotion attached to making a price decision.
  • Saves the producer time by allowing the company to monitor the grain price.
  • Allows the producer to benefit from price rallies.
  • Eliminates the worry associated with missed pricing opportunities if the price reaches the targeted level.  Pricing targets and quantities can be adjusted after the initial Offer is established (prior to being filled).
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