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:
- 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 Futures Price Cash Grain Price Today 20% Withholding Contract Charge Sell Stop@ Cash Bushels Bushels this contract Cost of this contract Total 20% Withholding July Futures on Sell Date Total Money You Get Back |
July $3.70 $3.15 $.63 ($3.15 x .2) $.10/Bushel $3.07 (3.70 - .63) 4,951 5,000 $500.00 (.10 x 5000) $3,150.00 (.63 x 5000) $3.85 (Gain of .15 cents x 5000 bu) $750 Gain + $3,150 (initial W/H) |
The 10 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).
Producer must take the any gains and the 80% at time of pricing out of position.
Works like a Basis Fixed Contract while avoiding service fees and additional discounts.