The information contained in this presentation is taken from sources which we believe to be reliable

1
Instruction Guide
Price Risk Developing a Marketing Plan and
Marketing Tools Basics


Country Hedging, Inc., Cenex Harvest States 5500
Cenex Drive Inver Grove Heights, MN 55077-1733
1-800-243-3432 or www.countryhedging.com
The information contained in this presentation is
taken from sources which we believe to be
reliable, but is not guaranteed by us as to
accuracy or completeness and is presented to you
for information purposes only. There is a risk
of loss when trading commodity futures and
options. Country Hedging, Inc. bases its
recommendations solely on the judgment of Country
Hedging, Inc. personnel.
2
(No Transcript)
3
3 Major Decisions Old Crop - Sell Cash Store
cash New Crop - Sell Production
Marketing Decisions
Sell Cash (in bin)
Store Grain
Sell Production
Why sell Production?
Why Sell?
Why Store?
Scale Up Strategy
Need Money
Waiting for
Better Price
Like Price
Like Price
Marketing Tools to Use
Sell Cash/Buy Call
Delayed Price
Sell Futures
Sell Cash/Buy Futures
Buy Put Option
Basis Fixed
Hedge to Arrive
Cash Sale
4
Does anyone have 97 crop?
1999 Crop
How much to sell? When to sell?
All at some point
Spread risk - sell before harvest
Corn or wheat
Harvest
Pre-Harvest
Storage
5
Market Plan
Selling Seasons Pre-Plant Growing Harvest
Storage New Old Pre-Plant Storage Growin
g Harvest
New Crop Plan
Old Crop Plan
Football Analogy- Coach has a game plan. When
does the coach want to score? How many coaches
wait until the 4th quarter to implement
their game plan? How many coaches wait until
the game is over to score? carry crop for more
than one year
6
Are you comfortable with loan rate?
7
Is it easy to sell in a weather market? When
does a weather market give me pricing
opportunities?
Key to moving price around report dates
Ask the group - Of the 3 major components that
move price (weather, acres, demand) which moves
price the most? All the answers are right. The
question that needs to be answered is When do I
implement my plan when the 3 events listed above
- give me an opportunity to price my grain and
implement my Plan.
8
Most Important
20
Forward Contract
(Price Ins.)
Min. Price
30
Forward Contract
50
(Price Ins.)
Min. Price
50
9
CORN
30
20
10
3-31
10
3-31
20
20
6-30
10
6-30
30
10
(Todays Date)
Corn
Soybeans
Wheat
-- Local cash bid --
--Local bid for new crop delivery --
Est. cost of production (use range) with low
prices
Use cash flow
What was the highest cash price you could have
received for old crop grain - may occur in
previous year
What was the highest cash price for new crop grain
What if we have a short crop? How high can prices
go?
Normal to large crop - price expectations
What is your next sales objective?
Selling zone
Break up in groups - record and use for plan
11
99
Corn
30
20
2.91 1/2
Dec. Corn
2.38
Dec
53 1/2
Mar
2.56
July
53 1/2 x .33 238
2.64 3/4
53 1/2 x .50 238
2.73 3/4
53 1/2 x .66 238
Pre-Plant
Growing
20
30
10
15
10
2.70 2.75
Z futures
10
2.60 Z futures
10
2.60 Z Put - .15 Premium 2.45 Min. Futures
2.70 Z Futures -. 15 Premium 2.55 Min. Futures
10
10
12
98
Corn
3.05
March Corn
2.09 1/2
March
95 1/2
May
2.42
July
95 1/2 x .33 209 1/2
2.57 1/4
95 1/2 x .50 209 1/2
2.73 1/2
95 1/2 x .66 209 1/2
13
Joe Farmer
1-1-99
Corn
50,000
20,000
30,000
20,000
20,000
30,000
30,000
20,000
20,000
(.25)
2-28
10,000
14
Corn
1-1-99
Corn
2.10
940
1100
140
130
130
65
40
40
30
1.84
-30
Dec. corn
Z calls
10
2.60
3-31
3.00 - 6 cents
2.70
3-31
3.00 - 6 cents
10
10
2.75
7-4
3.00 - 6 cents
2.80
7-4
3.00 - 6 cents
10
10
2.60
3-31
.15
2.70
10
.15
7-4
10
2.80
.10
7-4
15
Farmer Owned Reserve
16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
(No Transcript)
20
Marketing Tools Basics
21
(No Transcript)
22
(No Transcript)
23
Lower prices
Buy back or make delivery
Short
Sell back or take delivery
Higher prices
Long
24
(No Transcript)
25
Note Explains concept of margin and how money in
previous example goes into or out of
account.
Wheat
5,000 bushel
1/4 cent per bu.
12.50 (5000 x .0025)
20 cents/bu.
1000 (5000 x .20)
1000
800
4.00
-0-
1000
-.03 x 5000 -150
4.03
1
850
750 250 1000
-.02 x 5000 -100
2
Margin Call
4.05
.05 x 5000 250
4.00
1250
3
.10 x 5000 500
4
3.90
1750
.20 x 5000 1000
3.70
5
2750
26
(No Transcript)
27
(No Transcript)
28
(No Transcript)
29
(No Transcript)
30
(No Transcript)
31
(No Transcript)
32
(No Transcript)
33
4.00
4.00
(at expiration)
0
4.40
No value when you have the right to sell lower
than futures.
4.20
0
4.00
4.00
0
3.80
.20
Right to sell futures above the
current price-value here
.40
3.60
34
4.00
4.00
Right to buy lower than futures has value
4.40
.40
4.20
.20
4.00
0
4.00 call
3.80
0
Right to buy higher than futures has no value at
expiration
3.60
0
35
4.00
3.80
4.00
4.20
0
0
.20
.20
.15
.10
.10
.20
.35
36
4.00
3.80
4.00
4.20
.20
0
0
.15
.20
.10
.35
.20
.10
37
4.00
4.20
3.80
4.00
4.00
3.80
4.20
(Strike prices with intrinsic value are
in-the-money)
38
Describes rights held by option buyers and
obligations of option sellers.
39
(No Transcript)
40
SEP
HRSW
4.00
4.00
-0.20
(best to use local basis estimate)
0
3.80
41
3.00
HRSW
3.00
MAR
3.00
0.20
2.80
42
Notes
__________________________________________ _______
___________________________________ ______________
____________________________ _____________________
_____________________ ____________________________
______________ ___________________________________
_______ __________________________________________
__________________________________________ ______
____________________________________ _____________
_____________________________ ____________________
______________________ ___________________________
_______________ __________________________________
________ _________________________________________
_ __________________________________________ _____
_____________________________________ ____________
______________________________ ___________________
_______________________
43
Notes
__________________________________________ _______
___________________________________ ______________
____________________________ _____________________
_____________________ ____________________________
______________ ___________________________________
_______ __________________________________________
__________________________________________ ______
____________________________________ _____________
_____________________________ ____________________
______________________ ___________________________
_______________ __________________________________
________ _________________________________________
_ __________________________________________ _____
_____________________________________ ____________
______________________________ ___________________
_______________________