Contracts in the MarketEdge Solutions portfolio can provide upside potential; a simple example is a Minimum Price Contract. Minimum Price Contracts are typically used when you believe prices could trend higher, but you want to take advantage of the current cash price as well. This contract meets the “no downside risk” objective and the “upside potential” objective; but there is a cost to purchase a call option. Other examples include:
TARGET AVERAGING GRAIN CONTRACT
The Target Averaging contract only prices futures on days the market is at or above a target price you set. When the average futures price is finalized, bushels may be delivered to a destination you choose.
How it works:
- Commit to a bushel amount. Tell us how many bushels you would like to enroll in the Target Averaging program. You can enroll in old crop and/or new crop pricing periods but be sure to sign up before the enrollment deadline.
- Designate a target price. The target price does not lock in a price, but it represents the minimum futures price at which you are willing to make sales. For example, you might select a target price that represents your breakeven price to ensure you only average on days when prices are above your cost of production.
- Let the averaging begin! Each day the futures market settles above your target price, a few bushels are sold at that day’s settlement price. Each day the futures market settles below your target price, no bushels are sold but they are put on hold and accumulated until the market returns to the target price. If the market never reaches that price, then the bushels remain unsold.
Please note: Depending on the target price you select and market action, there is no guarantee that your bushels will get priced.
These contracts allow producers to have bushels priced weekly/daily at prices that are above the current market if certain conditions are met. How does it work? Grower agrees to deliver a specific quantity and quality of grain for a determined delivery period. The contract sets an accumulation price above current market levels and prices weekly/daily at that level if certain market parameters are met. There are different types of Accumulators, here is how they work.
Dec ’23 Example:
|Current Dec’ 23 market:||$6.00|
|Accumulation Period||214 days 2/3/23-11/24/23|
|Contract Quantity||10,000 bushels|
|Quantity Priced/day||46.73 bushels (10,000/214 days)|
Knock Out Accumulator with Daily Double Up
- Each day the market closes above $5.65 and below $6.50, 46.73 bushels will get priced at $6.50.
- Each day the market closes above $6.50 the quantity doubles and 93.46 bushels will get priced at $6.50.
- Any day, during the trading session, the market trades at $5.65, the contract is “Knocked Out” and all further pricing stops.
You select the pricing period and the pricing frequency (weekly, daily, at expiration). Other versions available include those with no “Knock Out” price or no “Double Up” feature. Also, versions may have a floor established; the bottom-line is you customize Accumulator contracts to fit your desired risk level.
A Min/Max Contract establishes both floor and ceiling prices, which are the respective minimum and maximum prices that will be received at expiration. All bushels enrolled are guaranteed to price no worse than the floor and no better than the ceiling. This is a great tool in protecting the downside while staying in the market to potentially capture upside on a market rally. Variations include establishing a Threshold price below the floor that pays out if the respective futures price closes below this Threshold at expiration.
FLEX PREMIUM CONTRACTS
Flex Premium contracts pay a premium on grain sold today in exchange for a Firm Offer to sell an equal quantity for deferred delivery if the futures price is at or above the Firm Offer Price at the expiration date of the contract. For more information on these contracts or other marketing alternatives available in our MarketEdge Solutions platform, contact your grain originator.
These programs draw off the experience of third-party trading professionals to set the futures price on a portion of your corn and soybeans. Enroll bushels with one advisor or diversify by spreading your bushels over multiple advisors.
Download a pdf of the Managed Futures brochure here.
- Enrolled bushels are marketed by professional traders with years of experience.
- All hedges and trades are fully transparent. At any given time, you will know how many bushels are sold and at what price. You can compare your personal marketing decisions with those of the advisor(s).
- 100% of the enrolled bushels will be priced by the specified ending date.
- Management fees of 8 cents/bu on corn and 10 cents/bu on soybeans are deducted from the final price.
- When the final futures price is established, the grain can be delivered to the grain facility of your choice. Grain does NOT have to be delivered to a River Valley Cooperative owned facility.
- Producers should have realistic expectations. These programs will never hit the market highs, but they generally take advantage of market carries and seasonal tendencies. Overall, they should be viewed as diversification tool.