2 min read

5 Grain Origination Reasons to Have the Minimum Price Discussion

5 Grain Origination Reasons to Have the Minimum Price Discussion

GattisBy this point in the harvest season, the writing on the wall has become the chicken coming home to roost. That is, this massive crop that kept all but the most progressive producers afraid to sell has become reality, and to some, a stark case of could’ve, should’ve, would’ve. One thing is for certain: looking back to the days of where prices were two, three or even four dollars higher is a fruitless endeavor for our producers. Our duty now, as effective grain merchandisers, is to capture the moment to reinforce how taking action now is better than continuing down the path of indecisiveness.

 

One of the most powerful instruments we have at our disposal to confront this issue is the Minimum Price Contract, or MPC. For those not familiar with MPC, it is a contract that ties the act of selling grain to the opportunity for the producer to be in the market if and when a rally occurs. Here, we will discuss the five reasons why this contract is so significant this year.

 

1)    MPC presents an alternative that may have been disregarded up until now.

Due to the market dynamics of prior years, this tried and true contract may have fallen out of favor due to the available prices at harvest or simply the cost associated with it versus the potential return.

 

2)    MPC puts the cost of inaction into perspective.

As of this writing, the CN15 at-the-money call is running $0.26, which translates into $0.0325/mo versus a typical commercial elevator storage rate of $0.05/mo, a total of $0.40 for that period. So, for $0.14 less, the producer can have use of his money AND still take advantage of any rally between now and next July, as opposed to paying more with no downside protection using storage.

 

3)    MPC steers the conversation towards being proactive rather than reactive.

The default position for many producers is to take no action, storing their grain until a time of need or higher prices arises. Rarely do these two ends coincide, and even when they do, selling may or may not take place. MPC is a hybrid in that the action of selling takes place, satisfying the producer’s need to have access to his money, coupled with the opportunity to wait out a period of low prices for a possible future increase in the market.

 

4)    MPC offers the chance to discuss proactive marketing plans for future crops.

In conversing over the inherent benefits of MPC for this particular year, the topic organically arises of prices for next year. Now is the time to put a plan for action into place built around profit per acre goals and target contracts. This will get the producer started off on the right foot of not being backed into a corner marketing-wise for subsequent crops.

5)    MPC Prompts Action

Many times the discussion of the benefits of using a MPC, as opposed to storage, when harvest rolls around results in an unintended consequence: the producer, upon weighing his options, simply sells his grain. This happens time and time again. It is this purview of marketing options when all hope seems lost that focuses the big picture for most producers; the act of merely taking what profit is available off the table with the intention of being more proactive in marketing the next bushel coming down the road.

 

MPC offers many benefits to your producer as well as to your merchandising plans moving forward. This contract offers the unique ability to offer that Win-Win outcome that we, as professional basis traders, are constantly striving to obtain. To learn more about MPC and other proactive origination topics, sign up for our Grain Origination online course.

Click Here to Learn About Our Grain Origination Course

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