Risk- Minimal, as the producer knows the cost up front to enter into the contract.
Reward- Moderate, as options bought will not follow futures prices tic-for-tic.
- Producers need to sell grain for cash flow needs, but the market shows upside potential.
- Basis is relatively good.
- Calculated price is above loan rate.
- Futures prices are good.
Futures Month _______________ December
Futures Strike Price _______________ $2.20
Cash Grain Price _______________ $1.76 (-$.44 Basis)
Call Option Premium _______________ $.08
Contract Charge/Bu. _______________ $.02
Total Cost/Bu. _______________ $.10
Cash Bushels _______________ 9,938
Bushels this contract _______________ 10,000
Cost this contract _______________ $1,000.00
Minimum Price _______________ Cash Bushels X Cash Price
Less Total Cost this contract
¸ Cash Bushels
The cost will be deducted from the producers grain check at the time of writing. In the event a producer wishes to “Minimum Price” a prior grain sale, they will be required to pay the total cost upon entry in to the option position.