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Frequent Contributor

Minimum price contracts?

Does anybody out there use them?  Is it good business to take a lower price today for the chance to get a higher price sometime in the future, (if the market goes up)?  For example last fall you could sell corn on a minimum price contract  with a $3.60 call for 42 cent premium.  So if the elevator was paying $3.42 cash for corn you would have gotten $3.00. Then this morning you could cash in the call at $4.42.   That nets you 82 cents put that with the $3.00 from last fall and it puts you at $3.82 for the corn you delivered last fall.  Yes it ignores the time value of money but you also have no storage cost, handing cost\shrinkage, or risk of spoilage. 

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Contributor

Re: Minimum price contracts?

Really don’t care for them. If we never got to $4.42, then you would have just sold corn well below Cost of production. IMO better to take the 42 cents and put it in your brokerage account for margin calls and buy the corn back on CBOT. 

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