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

Components of Cash Prices  Futures Price  Basis Basis - Flat Futures - Higher Cash - Higher at same rate as Futures Futures - Lower Cash - Lower at same rate as Futures

Picking the Proper Marketing Tool Expected Change Basis WeakenStrengthen Futures Prices Up Down Expect Stronger Basis Higher Futures Expect Stronger Basis Lower Futures Expect Weaker Basis Higher Futures Expect Weaker Basis Lower Futures Store Grain Delayed Price Contract Sell Futures Buy a Put Option Sell Futures/Buy a Call Basis Fixed Contract Sell Cash/Buy Call Sell Cash/Buy Futures Sell Cash Forward Contract Futures Prices

Cash Contract Requirements  All contracts require delivery  A delivery period is established  Futures and/or basis must be monitored to maximize potential

Cash Sale / Forward Contract: Sell Cash (in bin)  Month / Day ________  Sell Cash__________ Today’s Bid  Del. Month ________  Sell Cash ________ Forward Price Basis - Lower Futures - Lower Cash - Lower faster than Futures Plain English: The grain is sold to the elevator for delivery now, or at a later date.

Store Grain / Delayed Price Contract: Store Grain  Store grain in the elevator or on farm.  Service Charge______  Final Price: Futures Price________Basis ________Service Ch. ________ Final Price ________ Basis - Higher Futures - Higher Cash - Higher faster than Futures Plain English: The producer or the elevator holds the grain until the decision is made to sell.

Basis Fixed Contract: Store Grain  Delivery Period______  Futures Month ______  Basis Fixed ______  Final Price: Futures Price ______Basis ______Final Price ______ Basis - Lower Futures - Higher Cash - Higher slower than Futures 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.

Buy a Call Option: Sell Cash (in bin)  Sell Cash________  Futures Month to Reown________ StrikePremium  Buy Call______________  Min. Price: Cash Price________ Premium________ S. Charge________ Min. Futures________  Futures Option Min. Exp. Gain Cash Price ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ ______ ______ + ______ = ______ Basis - Lower Futures - Higher Cash - Higher slower than Futures Plain English: The producer sells cash grain and purchases a call option through his broker.

Buy Futures: Sell Cash (in bin)  Sell Cash________  Futures Month to Reown________  Futures price to Reown________ Basis - Lower Futures - Higher Cash - Higher slower than Futures Plain English: The producer purchases futures through his broker.

Sell Futures / Hedge-To- Arrive: Sell Production  Delivery Period_____  Futures Month_____  Futures Price_____ Basis (-)_____ Fix on or before delivery S. Charge(-)_____  Final Price_____ Basis - Higher Futures - Lower Cash - Lower slower than Futures 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.

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

Market Decisions