Sell Cash/Buy Call

1
Marketing Decisions
Sell Cash (in bin)
Store Grain
Sell Production
Need Money
Waiting for
Scale Up Strategy
Like Price
Better Price
Like Price
Sell Cash/Buy Call
Sell Futures
Delayed Price
Sell Cash/Buy Futures
Buy Put Option
Basis Fixed
Hedge to Arrive
Cash Sale
2
Components of Cash Prices

• Futures Price
• Basis

Cash - Lower at same rate as Futures
Cash - Higher at same rate as Futures
Futures - Lower
Futures - Higher
Basis - Flat
Basis - Flat
3
Picking the Proper Marketing Tool
Up
Basis Fixed Contract
Store Grain
Sell Cash/Buy Call
Sell Cash/Buy Futures
Delayed Price Contract
Weaken
Strengthen
Sell Futures
Buy a Put Option
Sell Futures/Buy a Call
Down
4
Cash Contract Requirements

• All contracts require delivery
• A delivery period is established
• Futures and/or basis must be monitored to
  maximize potential

5
Cash Sale / Forward Contract Sell Cash (in bin)
Plain English The grain is sold to the elevator
for delivery now, or at a later date.

• Month / Day ________
• Sell Cash __________ Todays Bid
• Del. Month ________
• Sell Cash ________ Forward Price

6
Store Grain / Delayed Price Contract Store Grain
Plain English The producer or the elevator holds
the grain until the decision is made to sell.

• Store grain in the elevator or on farm.
• Service Charge______
• Final Price Futures Price________ Basis
  ________ Service Ch. ________ Final Price
  ________

7
Basis Fixed ContractStore Grain
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.

• Delivery Period______
• Futures Month ______
• Basis Fixed ______
• Final Price Futures Price ______ Basis
  ______ Final Price ______
  
  

8
Buy a Call OptionSell Cash (in bin)
Plain English The producer sells cash grain and
purchases a call option through his broker.

• Sell Cash ________
• Futures Month to Reown ________ Strike Premium
• Buy Call ______ ________
• Min. Price Cash Price ________ Premium ________
  S. Charge ________ Min. Futures ________
• Futures Option Min. Final _at_ Exp.
  Gain Cash Price
  ______ ______ ______ ______ ______
  ______ ______ ______ ______ ______ ______
  ______ ______ ______ ______ ______ ______
  ______ ______ ______ ______ ______ ______
  ______

9
Buy FuturesSell Cash (in bin)
Plain English The producer purchases futures
through his broker.

• Sell Cash ________
• Futures Month to Reown ________
• Futures price to Reown ________

Cash - Higher slower than Futures
Futures - Higher
Basis - Lower
10
Sell Futures / Hedge-To-Arrive Sell Production
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.

• Delivery Period _____
• Futures Month _____
• Futures Price _____ Basis (-) _____ Fix on or
  before delivery S. Charge(-) _____
• Final Price _____

Cash - Lower slower than Futures
Futures - Lower
Basis - Higher
11
Buy a Put Option Sell Production
Plain English The producer purchases a put in
the brokerage account.

• Delivery Period _______
• Futures Month _______
• Minimum Futures Price Strike - Premium
  Min.Price ______ - _______ _______ (Buy Put
  Option)
• Final PriceMin. Price _______ Futures _______
  Basis _______ S. Charge _______
• With Minimum Price _______
• With Futures Price _______

Cash - Lower slower than Futures
Futures - Lower
Basis - Higher
12
Market Decisions