This Week in Agriculture:
Minimum Price Contract Quick Reference Sheet
A Minimum Price Contract allows the producer to lock in a floor price for grain and, for a fee, retain the right to participate in futures market increases.
There are two parts to the contract
1. The Floor
You sell grain (in 5000 bushel increments) at a price for a specified delivery period. This creates a floor, since you cannot receive less than the price you sold for. So far, this is like any other contract. However, in this case you pay a fee to add the second part of the contract,
2. Maybe More
In consideration of your fee, you have the right to participate in any increase above a certain futures price for a specified amount of time.
You sell Oct/Nov 16 delivery corn at $3.50/bushel. For 20¢/bushel, you purchase the right to stay in the market until February 20. You already know your lowest price ($3.50-$.20=$3.30), but you may be able to add to that price. You are tied to the March 2017 futures contract at $3.90 and are eligible to receive any increase above that price.
If futures go up – on February 5, March 2017 corn futures are at $4.20 and you execute final pricing. You receive an additional 30¢/bushel, making your final price $3.60 ($3.30 minimum price + $.30 increase)
If futures go down – on February 20, you have never executed final pricing and March 2017 futures are $3.70. The contract expires and your final price is $3.30
Downside Price Risk Upside Price Potential Additional Fees Cash at Delivery
Cash Sale No No No Yes
DP Yes Tied to cash mkt Yes No
Minimum Price No Tied to futures mkt Yes Yes
Call Courtney Rolfes 419.586.3077 to discuss your options with this program.