Extended Price Contract
Risk - Moderate to High. The producer can lose 20% of the cash price or more.
Reward - High, as any gain in futures is directly returned to the producer.
Works like a Basis Fixed Contract while avoiding service fees and additional discounts.
Cash Grain must be delivered to the elevator and a Long Position established in a futures month with a Floor in place to limit loss.
Use when:
- Basis is as good as expected.
- Market shows upside potential.
- Producer can accept risk or loss.
- Futures are low
Calculations: Example
|
Long Futures Month |
July |
|
|
July Futures Price |
$3.70 |
|
|
Cash Grain Price Today |
$3.15 |
|
|
20% Withholding |
$.63 ($3.15 X .2) |
|
|
Contract Charge |
$.03/Bushel |
|
|
Sell Stop @ |
$3.07 (3.70-.63) |
|
|
Cash Bushels |
4,951 |
|
|
Bushels this contract |
5,000 |
|
|
Cost of this contract |
$150.00 (.03*5000) |
|
|
Total 20% Withholding |
$3,150.00 (.63*5000) |
|
|
July Futures on Sell Date |
$3.85 (Gain of .15 cents x 5000 bu) |
|
|
Total Money You Get Back |
$750 Gain + $3,150 (initial W/H) |
|
The 3 cent contract charge and withholding will be deducted from the producers grain check at the time of writing. Producers will not be allowed to roll the contract to a deferred month.
Producers may defer the money for the initial 80% but cannot defer the 20% (only received after you sell out of your contract at a profitable level).