Weather, markets, trade concerns, and a difficult and intermittent harvest have made 2019 a year of various challenges for producers. This past year also provided us with some marketing opportunities that we had not seen for several years. Farmers Coop Society is working hard to help our producers overcome some of their challenges and take advantage of the opportunities that the markets present with some new contract options.
Extended Price Contract
The Extended Price contract is completely new to FCS this year. The basics of this contract can sound a little complicated; however, in practice, they work very similarly to using delayed price. This contract also offers an attractive savings for those that would normally use the delayed price option for delivered or stored grain.
The basics are:
◆ Contracts are written in 5,000 bushel increments (determined as dry bushels)
◆ Grain is marketed at spot price with basis established at time of sale
◆ Producer is paid a check for 70% of contract value at time of sale
◆ A “long” position is established for the producer in July futures at time of sale 30% of contract value is retained for margin calls
◆ Producer can choose to exit futures position at any time prior to contract maturity
◆ Any gain/loss on futures position is applied to the entire contract
This contract allows producers to gain some immediate equity from the sale of their crop while still staying long in the market to capture market appreciation coming out of harvest season. Extended Price also offers producers the advantage of only charging a three cents per bushel maintenance fee and no storage charges. In effect, the Extended Price contract accomplishes the same thing as Delayed Price with an upfront advantage in cost.
Accumulator contracts have been offered by FCS for a number of years. This contract can easily get overlooked as an effective way to market grain. Accumulator contracts are used to price grain for future delivery and tend to work best with longer pricing periods. They are written in 5,000 bushel increments with a service charge determined by contract length. The Accumulator contract comes with some set parameters; for example, Accumulation Level and Knockout Level. The Accumulation Price is typically 20–30 cents higher than the board price and is the price point at which the contract will double the priced bushels if it is a double-up contract. The Knockout Price on the contract is the price point below which the contract will stop pricing all together. The Knockout Price is typically 20–30 cents below the board price.
The most popular accumulators we offer are Weekly Double and Euro Date. Each contract will also have a duration period and a specific pricing day. A Weekly Double Accumulator will make a weekly sale at the accumulation level on the specific pricing day—at the close of the market. If the market closes above the Accumulation Level, you will sell double the bushels for that week. If the market drops below the Knockout Level anytime during the electronic trade, the contract will end all pricing.
The Euro Date Accumulator will make a weekly sale at the Accumulation Level on the specific pricing day—at the close of the market. However, it will not double weekly, but it can double on a specific day—at the end of the contract. Basis level for the contract is open and is typically set by the producer once accumulator has finished pricing. The Accumulator contract is an effective grain pricing tool that works especially well in “sideways” markets. The number of marketed bushels remains unknown until the contract has finished pricing, so it is important that this contract is used wisely. FCS will be reaching out to producers this winter with new opportunities in Accumulator contracts.
Condo Storage is a program that we started last year and has seen strong producer acceptance and steady growth. The Condo Storage program effectively gives the producer permanent ownership of bin space that can be utilized at any FCS location. Condo Storage is marketed in 5,000 bushel increments like our other previous contracts. In order to utilize the Condo Storage program, a producer would pay an initial upfront investment (between $2 and $2.50 per bushel) and an annual 9.5 cent per bushel maintenance fee. In return for that investment, the producer would receive 5,000 bushels of storage at any FCS location. The producer could then fill and empty those 5,000 bushels as many times as he would like throughout the year (bushels in Condo Storage cannot be used for Grain Bank). The producer would also be able to benefit from the same tax advantages as building a new grain bin on his farm.
If the producer wishes to exit the Condo Storage program, he can re-sell his ownership stake at any time to another FCS member of good standing for the same price that he purchased it for initially. The Condo Storage program allows producers to receive the same benefits as building a new grain bin on their property with a minimal up-front investment, no liability of the producer to handle/ store grain on the farm, and greater flexibility to re-market storage capacity if desired.
Farmers Coop Society is committed to our producers and providing them more opportunities to effectively store and market their grain. If you have any questions about these or any other contracts that FCS offers, please feel free to contact one of our Grain Originators: Doug Baade (Western Division) at 712-360-1744 or Braden Kooiker (Eastern Division) at 712-360-1261. You can also contact your local FCS office for more information.