ADM’s Marketing/Risk
Management Contract Tools
Marketing Alternative
Contract Description
Advantages
Disadvantages
Cash Marketing
(Spot Market)
The selling of grain “across the scale.” Taking
the price when hauling the grain to the elevator.
Know the price immediately.
No ”obligation” to deliver grain at a future date.
The seller is subject to market moves until he
pulls on to the scale.
Deferred
Pricing
Allows the customer to deliver grain now and
have the opportunity to price it at a later date.
Both basis and futures levels are left open and
will be established at a later date. Title passes to
buyer upon delivery.
Allows for movement of grain in times of limited
on-farm storage. Allows for participation in cash
price improvement. Transfers quality risk to
ADM.
Cash price may decline. Title passes to the buyer
upon delivery.
Allows the customer to deliver grain now and
have the opportunity to price it at a later date.
Title remains with the depositor of grain.
Because titles remain in the depositor’s name,
they can continue to participate in certain government programs.
The cash price may decline.
Forward Contract
The seller secures a cash price for a forward
delivery period in advance. This eliminates both
price and basis risk.
Establishes a cash price at the time the contract
is made.
Prices may improve over the contract price.
Basis
Contract
Allows the customer to lock in the relationship
between the cash market price and the futures
price (the basis) at a specific delivery point via a
contract to deliver physical grain.
Can lock in a favorable basis. Can receive a cash
advance on estimated contract value after delivery. Can take advantage of an upward movement
in futures.
Basis levels may improve. Futures prices could
move lower, forcing you to return part of your
initial cash advance.
This contract establishes the futures level for
a forward contract. The CBOT futures option
month coincides with the established deferred
delivery position. The basis will be set at a later
date, prior to delivery.
The customer can lock in a favorable futures
level. The customer can participate in improving
basis levels for the designated delivery period.
The basis may decline.
Futures Only
(HTA) Contract
Average Seasonal
Price (ASPTM)
Contract
Establishes a deferred delivery period, destination, and pricing in equal quantities of the
contracted amount over designated multiple
pricing periods. The average of these prices will
determine the final contract price.
Establishes a cash price over a historically “price
friendly” pricing period. Takes a disciplined approach to establishing a forward contract price.
Prices may improve after the ASP average contract price has been established.
Minimum
Price Contract
Allows the customer to lock in a minimum cash
price for grain while providing the opportunity to
take advantage of any price rally by establishing a “final price” within the designated pricing
period.
Unlimited upside potential. Provides cash flow
by receiving the minimum price when the grain
is delivered.
The premium paid to have the opportunity to
participate in upside market moves may be sacrificed due to lower futures prices.
Min/Max
Price Contract
Allows the customer to lock in a minimum cash
price for grain while providing the opportunity
to take advantage of any price rally within a
designated price range
Provides upside price potential within a designated price range. Provides this upside opportunity at a discounted premium as compared to the
Minimum Price Contract.
The premium paid to have upside opportunity
may be sacrificed with lower prices. Upside opportunity is limited.
Allows the customer to lock in a floor price for
grain by establishing a basis contract and utilizing
a provision to establish the floor. This provides
for participation in upside moves and protection
from downside risks.
Sets the floor price for grain while allowing
unlimited upside potential. Can lock in favorable
basis levels.
Premium paid to establish the floor may be lost
or sacrificed due to higher futures prices. The
delivery basis may improve.
Establishes a deferred delivery period and destination. The basis component of the cash price is
set by the customer; the futures component is set
by the customer’s choice from a menu of independent traders over a designated time period.
Helps diversify the customer’s marketing efforts
by having a third party set the futures price.
Takes a disciplined approach to establishing a
forward contract price.
Prices may improve after the ADM Advantage
futures contract price has been established. The
basis may widen.
Storage
Floor Price Contract
ADM Advantage
Contract
SM
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