Marketing Opportunities to Protect Your Bottom Dollar

Saving your dollars.

Saving your dollars.

The overall, long-term trend for both corn and wheat is still bearish with chances of short-term rallies occurring from weather scares and fund short covering.  When we look specifically at western Nebraska and Farmer’s Coop Elevator’s business, there are a large number of old crop bushels in the elevator as well as on the farm that will need to be sold and moved in order to make room for the next year’s harvest which is expected to be more than sufficient.  Unfortunately there are currently no signs either wheat or corn prices will reach previous years’ highs in time for the 2015 harvests.  The following ideas offer ways for the producer to stay in the market but move his grain.

1) Basis Contract to Protect Cash Price.

Basis has firmed up in the last couple weeks (Farmer’s Coop is currently -$0.50 on old crop wheat and -$0.25 on old crop corn) and has improved cash prices due to the fact that producers are not selling.  This could all change very rapidly if July 1 comes and everyone decides they want to sell what they have stored on the farm and there is a “run” on old crop selling.  There is a very good chance that basis will weaken if this occurs due to the surplus of supply in the local market..

A basis contract is a contract offered by Farmer’s Coop that fixes the basis to protect against any weakening in basis but the final futures price can be determined at a later date.  We offer a cash advance of a portion of today’s market value in exchange for ownership of the commodity.  This allows the producer, and Coop, to ship the grain to get ready for the new crop harvest but the producer is still in the market to take advantage of any price increases.

2) Minimum Price Contract to Set a Price Floor

This contract allows the producer to set a price floor and stay in the market for unlimited upside potential.  The producer sells his grain at today’s market price and purchases a call that expires in the future.  The purchase of the call will cost a premium but in exchange, the producer sets a floor and stays in the market, all while transferring ownership and moving his grain.  There is a 5,000 bushel minimum on this contract.  There are many different variations to this contract depending on the producer’s risk preference and how much he wants to pay in premium.

3) Delayed Price Contract

Farmer’s Coop Elevator will be raising storage rates effective July 1, 2015.  Open Storage rates will be $0.001315/day, or $0.04/month, per bushel on all grains except Millet, which will be $0.001973/day, or $0.06/month.  Current rates are $0.000986/day, or $0.03/month, per bushel for all grain except millet. Millet is

$0.001644/day, or $0.05/month, per bushel.  This will apply to all Farmer’s Coop Elevator locations.

Farmer’s Coop Elevator has decided to offer Delayed Price, or DP, as an option in lieu of open storage.  DP rates will be $0.001069/day, or $0.0325/month, per bushel (3/4 of a cent less than open storage). Upon execution of a DP contract, title of the grain passes to Farmer’s Coop.  Pricing of DP grain works exactly the same as pricing open storage grain only you pay less than if you kept the grain in open storage.  Farmer’s Coop Elevator is looking to acquire ownership on stored grain so we can ship it to make room for wheat harvest.  The more room we have, the less wheat needs to be stored on the ground.

This option allows the elevator to move the grain, the producer to keep the status quo (storing grain waiting for a price he likes), but the cost is less with a Delayed Price Contract.

If you have any questions about these contracts or other marketing opportunities contact Tucker at the Hemingford office 308-487-3325, or on his cell at 308-360-0830.  You can also contact me through my email at tucker.hamilton@farmcoop.com.

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