Producers' Watch

Gain Control of your Grain Marketing and Win!


Harvest lows:

How many times have you sold grain during harvest only to watch the futures price in Chicago rally post harvest?  How many times have you sold grain through an HTA contract in the summer at profitable levels, only to see the basis plummet during the fall (along with futures prices finding support or making a bottom)?  I've witnessed it myself 19 out of the last 25 years (or 76% of the time) I've been in the grain industry.

What does the data tell us?  See charts below - the above scenarios have happened multiple times since 1990.  How can you gain more control and take action based off of your own individual bias?  Consider Gavilon's new Producers' Choice contract that enables you to reprice your new or existing grain contract and receive penny for penny price movement based on your selection of a futures reference month.  Let's be clear - contracting grain involves risk and requires that participants are not only familiar with all of the risks but also possess the skills to manage those risks.

2018-10-17 08_15_00-A10_year_avg

 

2018-10-17 08_17_02-Mar_Jun_vs_Oct_Nov_avg

 

Is Producers' Choice right for you? 

  1. Do you have a strong bias that the market will move higher in the future?
  2. Are you a savvy marketer that understands price movement in the cash grain market?

If you answered NO to numbers 1 and 2 above, then consider other alternatives discussed in previous blog posts by clicking here; however, if you answered YES, then continue reading and let's discuss further.  Issues involving storage and cash flow are very important factors and must be taken into consideration:

On-Farm Storage:

  • Do you have excess grain that you are unable to store and want to avoid DP or Storage fees?
    • If YES, then consider delivering and selling your grain now and entering into a Producers' Choice contract that enables you to receive up to a 70% advance on delivered grain and have penny for penny price movement based on your selected futures reference month.  Downside protection is required with this contract.  Click here to see downside protection alternatives.
  • Do you have sufficient On-Farm storage for your grain? 
    • If YES, then consider existing HTA (Hedge-To-Arrive) contracts that you may have on for this fall or potential HTA's that you might execute for next fall.  If you have a strong bias that the market will move higher, then you can reprice your existing HTA contract and receive penny for penny price movement based on the respective futures reference month.

Cash Flow:

  • Do you need cash flow for your operation?
    • If YES, then consider delivering and selling your grain now.  Gavilon will provide up to a 70% advance on delivered grain and will allow you to reprice your grain contract by entering into a Producers' Choice contract and receiving penny for penny price movement on your selected futures reference month.
    • If NO, you can still enter into a Producers' Choice contract and Gavilon will hold your money until you need it, while you still maintain penny for penny price movement based on the respective futures reference month.

Want to WIN Gavilon Gear?? Enter for your chance to win by following us on social media and posting a picture of harvest using #GavilonHarvest2018 OR download our Producer's Choice Info packet today!  See official rules for entry.

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Example 1:

On April 10th, you decide to book a Hedge-To-Arrive contract with Gavilon by locking in $8.70 March futures knowing that if the market conditions change, Gavilon offers Producers' Choice contracts.  On June 10th, you feel the market has dropped too low given the growing season ahead.  You instruct your Gavilon Merchandiser to establish an Initial Producers' Choice price using those same March futures that are now trading at $8.30.

Producers' Choice service fee = $0.02 cents/bu

Scenario 1: On July 15th, March Soybean futures have risen to $9.25.  You instruct Gavilon to reprice and lock in your Final Producers' Choice price.  At this time, you also lock in your basis at $0.75 under March futures

In this scenario, Producers' Choice would net you $0.95 cents more for your contract and a final cash price of $8.88

Futures $8.70
Basis -0.75
Producers' Choice Adjustment ($9.25 - $8.30) +0.95
Producers' Choice service fee -.02
Final Cash Price $8.88

Scenario 2: On July 15th, March Soybean futures have fallen to $8.09.  You instruct Gavilon to reprice and lock in your Final Producers' Choice price.  At this time, you also lock in your basis at $0.75 under March futures

In this scenario, Producers' Choice would net you $0.21 cents less for your contract and final cash price of $7.72

Futures $8.70
Basis -0.75
Producers' Choice Adjustment ($8.09 - $8.30) -0.21
Producers' Choice service fee -.02
Final Cash Price $7.72

Example 2:

On November 1st, you need to sell 10,000 bushels of soybeans to free up storage space, but you are unsatisfied with the current cash bid of $8.54.  You are confident that the soybean market will improve compared to current market levels, so you enter into a Producers' Choice contract at the same time you deliver the grain.  You select July as your futures reference month and establish your Initial Producers' Choice price at $8.88.

Producers' Choice service fee = $0.02 cents/bu

Scenario 1: On May 15th, the July Soybean futures have risen to $9.58.  You contact your Gavilon Merchandiser to reprice and lock in your Final Producers' Choice price.  

In this scenario, Producers' Choice would net you $0.70 cents more for your contract and a final cash price of $9.22

Original Cash Price $8.54
Producers' Choice Adjustment ($9.58 - $8.88) +0.70
Producers' Choice service fee -.02
Final Cash Price $9.22

Scenario 2: On May 15th, the July Soybean futures have fallen to $8.65.  You contact your Gavilon Merchandiser to reprice and lock in your Final Producers' Choice price.  

In this scenario, Producers' Choice would net you $0.23 cents less for your contract and final cash price of $8.29

Original Cash Price $8.54
Producers' Choice Adjustment ($8.65 - $8.88) -0.23
Producers' Choice service fee -.02
Final Cash Price $8.29

Step 1: Get more information on Producers' Choice by clicking here

Step 2: Enter into a cash grain contract with Gavilon

Step 3: Select your futures reference month: 

Corn: September, December, March, May, July

Soybeans: September, November, January, March, May, July, August

Wheat: July, September, December, March, May

Step 4: Protect your downside risk and consider a limit order for your target above the market.

You can use a Stop, Trailing Stop, or Put Option to protect your downside risk.  Learn more by clicking here



Disclosure:

News, commentary, data, charts, research reports, ratings, analyst opinions and other information provided on this page are the opinions of the author and intended for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell, or a recommendation or endorsement by Gavilon of any product, service or investment strategy. Gavilon makes no guarantees that the information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from its use.



 

Rob Huston, Vice President

Written by Rob Huston, Vice President

Vice President, Origination at Gavilon Group, LLC. An innovative leader with a successful background in risk management, sales & digital marketing, futures, options and OTC Derivatives. More than 20 years of successful, progressive experience with a demonstrated performance record and diversified management expertise.

Harvest 2018

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