03/07/17 3:25:59 PM

Contracts We Offer
  • Spot Cash Sale: Sell Grain at today’s cash price for nearby delivery.
    • Advantages:
      • The exact price is known
      • Ability to move grain in short time period
      • Cover nearby cash needs
    • Disadvantages:
      •  Risk of missed opportunity in the market for higher cash price
    • Best time to Use a Spot Cash Sale
      • When basis is stronger than normal
      • When cash flow is needed
 
  • Forward Cash Contract: Producer sells a specific quantity of grain for a specified cash price for a delivery at a later date.
    • Advantages:
      • The exact price you will receive for your grain is established
      • The exact quantity of grain to deliver is established
      • The Date of delivery is established
      • Downside price risk is eliminated
    • Disadvantages:
      • Upside price potential is eliminated for the quantity you contracted
      • Contract must be filled even in the case of production shortfall
    • Best Time to Use a Forward Contract
      • When the Cash price is at an acceptable profit
      • When basis is stronger than normal
      • When you expect prices to fall
      • When you expect supply to be very high (example: harvest)
         
 
  • Basis Contract: Producer sells a specific quantity of grain by locking in the basis (difference between CBOT and our cash bid) for delivery at a later date.
    • Advantages:
      • Quantity and Delivery period for exact bushels are established
      • Producer eliminates risk of basis widening out
      • Opportunity to lock in a higher cash price at a later date if market rises
    • Disadvantages:
      • Producer assumes price risk until futures price is locked in
      • Opportunity for basis improvement is eliminated
    • Best Time to Use a Basis Contract
      • When a price rise is expected
      • When basis is stronger than normal
      • When there is ample production/stocks of grain
 
 
  • Hedge to Arrive: Producer agrees to sell a specific quantity for a certain delivery period and locks in the futures board price for delivery period. A basis will be established at a later time. There is a 3 cent charge per bushel for Hedge to Arrive contract.
    • Advantages:
      • Allows the producer to lock in a futures price if they feel that the board is going to trade lower
      • Producer can lock in a basis level at a later time if they feel that basis will tighten up
    • Disadvantages:
      • Producer gives up risk of rises in the market
      • Risk of basis widening out
    • Best Time to Use a Hedge to Arrive Contract
      • When a price decline is expected
      • When you expect to obtain a better basis level at a later date
 
 
  • Firm Offers: Producer makes an agreement to sell a specific amount of bushels if the cash or futures price for a specific delivery period reaches a predetermined level. Firm Offers are in place until the contract is made, or producer calls and cancels the offer. 
    • Advantages:
      • Price targets can be reached without having to constantly monitor the market
      • Short lived rallies can be taken advantaged of
      • Offer can be canceled at any time prior to the offer being filled
      • When the market rises significantly and there is a high volume of calls being received, your contract is automatically created. It is not required that you talk to a merchandiser.
      • Firm Offers create opportunities for basis to be pushed in your favor for the firm offer to hit
    • Disadvantages:
      • Grain is priced at the offer – additional price potential is eliminated
    • Best Time to Use a Firm Offer:
      • When you feel there will be a rally in the market
      • When cash levels are at an acceptable level
      • When you feel there may be volatile markets
 
Depending on the market conditions, Didion may have other contracts available to offer. If you would like to discuss any other contract options, please give us a call to talk about different opportunities. 
 
 
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