Delayed Price Contract
Execution:
- Deliver grain to your local FFGE elevator
- Establish service charge & pricing time frame for contract
- Price at some date in the future
- 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 to 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 mus appreciate or develop a carry (prices higher for later time frame )
- Open to futures and basis risk