Farmers' Corner September Issue Index

If You Use Minimum Price At
Harvest, Learn How To Spend
Less For What You Want

If you can't sell ahead at your target price, and the harvest price is unacceptable, the next best option is to sell and buy Minimum Price to stay in the market. This allows you to stay in the market while controlling risk and limiting additional marketing costs.

The years you can sell ahead, you won't have to worry about spending additional money to stay in the market, but when you have to use Minimum Price at harvest, it is important to put yourself in a position to get the most performance for your money.

We've dedicated this issue to the fine-tuning of Minimum Price -- spending no more money than you need to and positioning yourself to make the most of a rally if one happens.

You already know that Minimum Price always works; now let's look at how to make it work better.

Enjoy Lower Cost and Better Performance With Short-Term Minimum Price

With Minimum Price, the potential for increase is tied to the futures market. This means that when you decide how long you want to stay in the market with Minimum Price, you are choosing which futures month you want to receive any increase from. When making this decision, it is helpful to have a basic understanding of how the futures market works.

One of its functions is to ration the supply of grain throughout the season. When there are ample stocks of grain on hand, nearby futures prices are lower than deferred. If there is a shortage of grain (either perceived or actual), nearby futures prices will rise to attract grain into the market. Because an immediate demand for grain is causing prices to rise, the nearby futures price will go up higher and faster than the deferred months.

This means that if you buy Minimum Price at harvest and there is a rally, you will have better performance if you purchased less time; not only that, you will also have spent less money for Minimum Price, since it costs less to purchase less time.

Minimum Price Is Just Another Tool; Keep Your Goals In Sight

Every marketing effort you make should be based on a returning a specific desired profit. Without profit as a benchmark, it can be difficult to maintain any specific direction or focus. If you purchase Minimum Price and the price goes up, it is your responsibility to inform us when you would like to execute pricing.

We recommend setting a goal when you first purchase Minimum Price, and including a Target Order in your Minimum Price agreement that allows us to automatically execute final pricing for you if your base futures price increases by a specific amount.

For example, let's assume that you are unable to sell ahead, and so you sell your grain at harvest and purchase Minimum Price to stay in the market with no downside risk. The harvest price was 30¢ below your original target price, and you paid 20¢ for Minimum Price. An increase of 50¢ would allow you to recover your Minimum Price costs and reach your original target price.

Minimum Price is a tool that helps you make good marketing decisions. It can be a distraction, however, if you succumb to the temptation of trying to outguess the market or sell on the high. Used with discipline and as part of a profit-based marketing plan, it can be a valuable selling tool.

Opportunity Replacement
Another Benefit of Short-Term Minimum Price

Example 1

At harvest, you purchase long-term Minimum Price spanning several months. Your opportunity for increase is tied to a deferred futures month. The dotted line represents your base futures price. You are eligible to receive any increase above this price.

A few months later, prices have moved lower. The market must now recover to where it was at harvest before you begin receiving any increase.

Example 2

At harvest, you purchase short-term Minimum Price spanning less time. Your opportunity for increase is tied to a closer futures month. The dotted line represents your base futures price. You are eligible to receive any increase above this price.

A few months later, as your Minimum Price expiration date nears, prices have moved lower. You decide to purchase a little more time.

Example 3

Your Minimum Price extension makes you eligible to receive any increase from the current futures price level, so you don't have to wait for the market to recover.

If you purchase short-term Minimum Price and prices have not increased as expiration nears, you have a decision to make; either let it expire or extend it for an additional fee. We can now offer you thirty-day Minimum Price extensions to provide even more flexibility at a lower cost.

Make The Most Of What We Have

There is no doubt that we do not have a perfect market; no one does. Furthermore, each one of us has the responsibility and opportunity to work toward changing what we think is unfair or imperfect.

Our markets aren't perfect, but until they are different, they are the environment in which you must strive to operate profitably. Most of the time, a reasonable price is available at some time for the crops you are trying to sell. Our market provides opportunity for those who know what they want and know how to maximize their opportunities.

Target Contracts and Forward Contracts have proven themselves the best tools currently available to lock in profitable prices on a crop. They are simple, straightforward, and they will enable you to capitalize on a disciplined, profit-based marketing plan.

Do you know what price would make you say "sold"? We are now accepting Target Contracts for 2000 and beyond.

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