Grain Marketing and Pricing Strategies for Producers

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. Expect Stronger Basis Expect Weaker Basis Higher Futures Higher Futures Futures Prices Expected Basis Basis Change Sell Cash Futures Prices Forward Contract Expect Stronger Basis Expect Weaker Basis Lower Futures Lower Futures Picking the Proper Marketing Tool Up Basis Fixed Contract Store Grain Sell Cash/Buy Call Sell Cash/Buy Futures Delayed Price Contract Strengthen Weaken 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 - Lower faster than Futures Futures - Lower Basis - Lower 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 __________ Today’s Bid • Del. Month ________ • Sell Cash ________ Forward Price

6. Cash - Higher faster than Futures Futures - Higher Basis - Higher 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. Cash - Higher slower than Futures Futures - Higher Basis - Lower Basis Fixed Contract:Store 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. Cash - Higher slower than Futures Futures - Higher Basis - Lower Buy a Call Option:Sell Cash (in bin) Plain English: The producer sells cash grain and purchases a call option through his broker. • Sell Cash ________ • Futures Month to Reown ________ StrikePremium • Buy Call ______ ________ • Min. Price: Cash Price ________ Premium ________ S. Charge ________ Min. Futures ________ • Futures Option Min. Final @ Exp. Gain CashPrice ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______

9. Buy Futures:Sell 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 (-) _____ Fixon 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 Price:Min. Price _______ Futures _______ Basis _______ S. Charge _______ • With Minimum Price _______ • With Futures Price _______ Cash - Lower slower than Futures Futures - Lower Basis - Higher

12. Market Decisions