Producers Corner

 

                                     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.

 

Example:

 

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

 

Contract comparison

 

                                 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.