GRAIN DIVISION

FCE consists of 7 different grain elevators located in SW Minnesota. Collectively we have 17 scales, 20 dump pits, a grain receiving capacity of 260,000 bushels per hour and 25 million bushels of storage. We have access to multiple rail markets as well as truck markets that provide competitive arbitrage opportunities. 

 


Marketing Tools

Farmers Cooperative Elevator Company offers the following marketing tools at little to no cost.
Please feel free to stop in or call us to discuss any of these marketing contracts.


Forward Cash Contract

Execution:

  1. Contact FCE local elevator to lock in cash price for some time frame in the future
  2. Deliver grain as agreed
  3. Receive payment

Strategy:
This contract can be used for two different marketing strategies:

  1. Use the forward contract to lock in a favorable new crop price before your crop is planted or harvested.
  2. The forward contract can also be used to "lock in a carry." The market may pay more for grain delivered at a later date. If the forward price is greater than the current price plus your storage and interest costs, it would be beneficial to lock in the higher price.

Advantages:

  • Easy to execute
  • Eliminates all risk of price decrease
  • Ability to lock in the carry

Disadvantages:

  • Payment is not received until delivery
  • Futures and basis are both locked in
  • Inability to participate in a market rally
  • Delivery is required
  • Potential penalty for cancellation


Futures Fixed Contract

Execution:

  1. Contact your local FCE elevator to establish a delivery date, bushel amount, futures level, and pricing time frame
  2. Deliver grain as agreed
  3. Establish basis level by pricing date
  4. Receive payment

Strategy:
This contract should be used when the futures price is relatively high and the basis is low. The futures and basis may often move in opposite directions.


Advantages:

  • Eliminates downside futures risk
  • Avoids service charges
  • Can eliminate storage costs and risks
  • Allows pricing flexibility in the basis

Disadvantages:

  • May have minimum bushel requirement
  • Title of grain is transferred
  • Payment is not received until the basis level is established
  • Delivery is required
  • Open to basis risk
  • Requires historical futures and basis knowledge


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.

Use when:

  1. Basis is as good as expected.
  2. Market shows upside potential.
  3. Producer can accept risk or loss.
  4. 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 $.02/Bushel  
Sell Stop @ $3.07 (3.70-.63)  
Cash Bushels 4,951  
Bushels this contract 5,000  
Cost of this contract $100.00 (.02*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 2 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 intial 80% but cannot defer the 20% (only received after you sell out of your contract at a profitable level).

Works like a Basis Fixed Contract while avoiding service fees and additional discounts.


FCE Averager Contract

Risk-Low 

Reward-Moderate, as the producer can gain upside average, but not total rise.   

Use when:

  1. Needing to sell old or new crop corn or soybeans
  2. Futures prices are stagnant.

Advantages:

  • Producer sells during a time they may not be thinking of selling grain
  • Takes the emotion out of marketing your grain
  • Free of charge
  • Producer has the ability to price out of contract and sell remaining bushels 
  • Set basis at any time (if using the HTA option)

Disadvantages:

  • Subject to market fluctuations
  • Producer may not get the highest price compared to other sales he/she made

 


OTC Contracts

Risk-Low to Moderate, as the producer has a premium but can get doubled up

Reward-High, as the producer gains a better futures price than the current futures

Use when:

  1. There is a carry in the futures market.
  2. Futures prices are stagnant.
  3. Cost is cheap.
  4. You are looking to make a forward sale, for soybeans or corn

Advantages:

  • Producer selects which futures month they want to deliver upon
  • Producer receives a premium futures price
  • Little to no cost
  • Set basis at any time

Disadvantages:

  • Subject to knockout 
  • Bushels may get "doubled up" if price is "x" at expiry
  • Producer is subject to basis at elevator

Cash Sale

 

Execution:

  1. Deliver grain to your local FCE elevator
  2. Sell grain at the current bid
  3. Receive payment

Strategy:
Use this tool when the cash price has met your objective. The futures and the basis levels may both be at favorable levels or one may be significantly stronger than normal to compensate for the weaker factor.


Advantages:

  • Easy to execute
  • Receive payment immediately
  • Eliminates all risk of price decrease
  • No storage costs or risk

Disadvantages:

  • Futures and basis are both locked in
  • Inability to participate in a market rally
  • Delivery is required

Delayed Price Contract

Execution:

  1. Deliver grain to your local FCE elevator
  2. Establish service charge & pricing time frame for contract
  3. Price at some date in the future
  4. Receive payment at time of pricing

Strategy:
This contract does not lock in any component of the price structure. This contract should only be used when the cash price is expected to appreciate enough to cover all service charges and interest expense.


Advantages:

  • Allows pricing flexibility in the futures and basis
  • Delivery and pricing do not coincide
  • Eliminates storage risk
  • Ability to take advantage of carry markets

Disadvantages:

  • Title of grain is transferred upon contracting
  • Payment is not received until price is established
  • Delivery is required
  • Interest and service charges accrue
  • Market must appreciate or develop a carry (prices higher for later time frame)
  • Open to futures and basis risk


Basis Fixed Contract

Grain cannot be applied to unpriced Basis Fixed Contracts

Storage, Drying, and Shrink Discounts will apply to unpriced contracts

Execution:

  1. Contact your local FCE elevator to establish a delivery date, bushel amount, basis level, and pricing time frame
  2. Establish futures price by pricing date or delivery
  3. Deliver grain as agreed after pricing
  4. Receive payment

Strategy:
This contract should be used to lock in a favorable basis level and allow time for the futures market to appreciate. Generally, when the futures are low, the basis will be high.


Advantages:

  • Eliminates downside basis risk
  • Can eliminate storage costs and risks if futures are priced
  • Allows pricing flexibility in the futures
  • Avoids service charges if futures are priced

Disadvantages:

  • Futures must be set prior to delivery
  • Full payment is not received until the futures level is established
  • Delivery is required
  • Open to futures price risk
  • Requires historical futures and basis knowledge
  • Cannot be rolled


Minimum Price Contract

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.

 

Use when:

  1. Producers need to sell grain for cash flow needs, but the market shows upside potential.
  2. Basis is relatively good.
  3. Calculated price is above loan rate.
  4. Futures prices are good. 

Calculations Example

            Futures Month            _______________                  December
 
            Futures Strike Price     _______________                 $3.50
 
            FCE Cash Grain Price   _______________                 $2.75 
 
            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            _______________                 $2.65
 
            Minimum Price            _______________                  Cash Price - Call Option Premium
                                                                                                Less Contract Charge
                                                                                              
 
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.