A Grain Contract to Help you Cover Expenses and Let the Futures Ride

Amanda Eller

Aug 27, 2018

With corn harvest slowly making its way across the grain belt, farmers are facing tough market choices. For farmers with on-farm storage to hold their crop, the decision is easier: look for higher basis levels and potentially better cash prices later in the season. 

Harvest Market Conditions and Storage Costs

But a lot of farmers do not have on-farm storage or their storage is maxed out thanks to bumper crop in back-to-back years.

In addition, for those farmers who need cash to pay bills, selling at depressed price levels is a difficult pill to swallow. If you find yourself in this situation, your marketing options are likely constrained to either

(a) selling off the combine or

(b) storing at local elevators for a hefty cost. With the strain on storage space this year elevators are publishing higher rates for storing. Some facilities are charging as much as 15 to 25 cents for a flat drop fee and then 3 to 5 cents a month in addition.

On top of that, many farmers are reluctant to take action with the corn futures market hovering at the $3.50 mark, off their summertime highs above $4. In fact, the December futures has been stuck in a tight 15-cent range for the last 30 trading days; you would have to go all the way back to 1994 to find a year when the range of trading was so narrow at harvest.

So what can you do in this situation when you don’t like the futures price or huge fees for off-farm storage, but you need to unload grain at harvest?

A Solution For Farmers Without Storage

Farmers Business Network™ has a solution that helps to overcome these issues. The Deferred Futures Price contract allows you to establish delivery at the elevator and hold out fixing a final price till a later date. In addition, FBN gives you 70% of the cash price upon delivery, which is a great way to manage cash flow for your operation.

Example of How it Works

Suppose on Oct. 20th a farmer delivers corn to an elevator when the cash price is $3.00 a bushel and establishes a futures month to price their bushels on for the future. Let’s suppose the farmer elects to use the March corn futures, which are trading at $3.66 on Oct. 20th.

Once the grain is delivered on October 20th and premiums/discounts are applied on that grain, FBN will pay the farmer 70% of that cash price at the time of delivery, less a $0.03 per bushel service fee, which equates to $2.07.

After delivery, the farmer can choose when to establish the futures price and he can work with the FBN Grain Merchant to set max/min prices on the futures price. For this example, let’s assume the farmer sets the final futures price on February 14th, when the March futures is at $4.00. Once the futures is fixed, the farmer would get the remaining 30% of his payment ($0.90) plus the difference in the March futures price ($0.34).

As a result, the final cash price paid to the farmer is $3.31, which in this example is $0.31 higher than the $3.00 cash price upon delivery on Oct. 20th.

Of course, that result hinges on the futures price rallying after delivery. If the March futures price were to fall then the final price paid to the farmer would be less than the cash price established upon delivery.

With another large crop expected, storage space will be tight this year - driving fees up for off-farm storage at local elevators. The Deferred Futures Price contract from FBN can be a valuable way to forgo paying those fees, but keeping your marketing window open for a post-harvest futures rally.

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This article is excerpted from our Market Intelligence newsletter, delivered weekly toFBNMarket Advisory members. WithFBNMarket Advisory, you'll receive trulypersonalizedtools and reports to support your grain marketing efforts. Get access to market news, straightforward marketing recommendations, basis trend insights and weather reports—all relevant to your operation and geographic location.

FBN Crop Marketing is offered by FBN CM LLC and is only available where FBN CM LLC is licensed. Contact (844) 200-FARM for more information. We do not guarantee customers will receive specific benefits or value from participating in FBN Crop Marketing; results will vary. This contract involves risks, including the risk that market conditions deteriorate, resulting in contract participants receiving only 70% of the Initial Cash Price available to you. In addition to being an FBN Member, Additional Terms and Conditions apply to qualify for the FBN Deferred Futures Price offering.Disclaimer: Market conditions could result in no further payment to you at contract close. © 2018 FBN CM LLC. All Rights Reserved. support@farmersbusinessnetwork.com 388 El Camino Real, San Carlos, CA  94070 www.farmersbusinessnetwork.com (844) 200-FARM.

Amanda Eller

Aug 27, 2018