Columbia Grain is here to help you cultivate greater returns. Our extensive expertise in contract execution is backed by over 40 years of experience, helping producers like you to navigate changing market conditions around the world.
MINIMUM PRICE CONTRACT
Minimum Price Contracts are typically used when you believe the Futures prices will move higher but you want to take advantage of the current Cash price as well. A Minimum Price Contract is established when you sell a cash contract at your local CGI facility for a set delivery period and simultaneously purchase a Call Option. Purchasing a Call Option allows you to benefit if the futures markets are in an upward trend and you want to establish a floor price or a “Minimum Price.”
PROS:
- Minimum Price is established
- Can continue to participate if futures are in an upward trend
CONS:
- Cost of the Call Option purchased
- Call Option could expire with no value if futures trend lower or sideways
EXAMPLE:
Cash bids at your local CGI facility on August 15 for December delivery for: Corn
| Futures Price | $ | 5.50 |
| Local CGI Basis | $ | 0.10 |
| Gross Cash Price | $ | 5.60 |
| Buy a 5.50 CZ Call Option | $ | 0.30 |
| Minimum Price Contract | $ | 5.30 |
|---|
EXAMPLE:
If Markets go HIGHER: October 10th
If Markets go LOWER: October 10th
| Futures Price (December Corn) | $ | 6.50 |
| Value of 5.50 CZ Call Option | $ | 0.80 |
| Minimum Price Established | $ | 5.30 |
|---|---|---|
| Added Value of CZ 5.50 call | $ | 0.80 |
| Cash Sale Contract | $ | 6.10 |
| Futures Price (December Corn) | $ | 4.50 |
| Value of 5.50 CZ Call Option | $ | 0.05 |
| Minimum Price Established | $ | 5.30 |
|---|---|---|
| Added Value of CZ 5.50 call | $ | - |
| Cash Sale Contract | $ | 5.30 |
Practice Sheet
| Futures Price: | ||
| Local CGI Basis: | + | |
| Gross Cash Price: | = |
| Buy a Call Option: | - | |
| Minimum Price Contract: | = |
*New Crop cash contracting must have basis levels available for contracting time frame. This material should be construed as examples of potential uses of marketing tools offered through Columbia Grain and not as trading advice – marketing grain involves substantial risk; you should fully understand that risk before contracting your grain in any marketing tool provided through Columbia Grain – Columbia Grain reserves all rights under the NGFA. Please consult with your local CGI merchandiser on cost associated with this contracting option.