Harvest 2018 has commenced! There have been multiple reports of yields being higher than anticipated in the Western Illinois area. On one account, a producer stated that a field averaged over 200 when he was expecting to harvest 140 bushels per acre. Is this similar to your situation? You are most likely undersold, like many others, and the price just plain stinks.
However, do not fret! There are options for you to deliver to the elevator and not take the cash price. These options include:
- Optimism: The option exists to deliver your grain in the fall and hope for higher prices later. With this decision, you would simply be delivering your grain to a storage contract and selling at a later, yet to be determined, price. This method works if you watch the market and have orders in place. UFC offers its customers an offer system to put in a desired price. Remember, DP is good for 90 days from the date of delivery. After 90 days, the daily minimum ($0.00125 cents per bushel) will apply.
- Contract for December: Currently, the spread from the fall cash price to the December cash price for corn is 29 cents. It will cost 20 cents per bushel (subject to change) to put bushels on DP. Therefore, you are gaining 9 cents to wait until December to sell your corn. On the soybean side of things, the spread from the fall cash price to the December cash price is 37 cents. The DP rate for soybeans costs 25 cents (subject to change). Therefore, you are 12 cents better off to wait until December to price your grain.
- Basis Contract: A basis contract allows you to generate cash flow without locking in a guaranteed price. It works by setting the basis to deliver now but waiting until a later date to set the futures price. With a basis contract, you can get a 75% advance upon delivery of the bushels. As of this writing, cash price is $3.06 at the river; the December futures price is $3.51 and basis is 45 under. By locking in the 45 under now, you are giving yourself the opportunity for the futures price to exceed $3.51 later down the road.
- Minimum Price Contract: Compared to a basis contract, a minimum price contract allows you to generate cash flow while locking in a guaranteed price. The minimum price is calculated by taking the cash price today minus the cost of a call option. The options are endless when it comes to determining which futures month and price to select. The further out you go, the more expensive the option will be. No matter how far out you go, we recommend purchasing an “at-the-money” option; this means the option will move penny for penny with the market. For example, May 2019 corn futures are at 3.72. An “at-the-money” option would be 3.70. This can be found here. This option will cost approximately 19.5 cents plus a 2 cent UFC fee. Therefore, we will take today’s cash price ($3.06) minus 21.5 (19.5 + 2) to arrive at $2.845; this is your guaranteed minimum price which you can receive once the bushels have been delivered. You now have until the second to last Friday in April to take advantage of an elevation in the May corn futures price. Upon exercising the option, UFC will cut you a check for the value of it that day. “Buy low, sell high,” is a good motto to go by when working with options. This contract type can only be transacted in 5,000 bushel increments.
If you have unsold old crop bushels in the bin, you are already long the market. With yields being above record highs, what percentage of your crop do you want to bet that the market will go up?
Now that you are aware of your options, don’t hesitate to contact your location or any one of UFC’s knowledgeable grain buyers today to see how these contracts will fit your operation.
Scott Meyer: 217-964-2123
Peggy Duesterhaus: 217-964-2714
Hannah Wollbrink: 217-617-3572
Tim Ellerbrock: 217-430-8539
Larry Spurgeon: 660-964-1987