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Grain Contract Strategies

As a state licensed grain dealer, Zimmerman Feed & Grain offers a number of grain marketing options. We electronically transmit our daily bid sheet to our customers. Contact us to be added to the list!

Cash Contract

A contract to sell grain that establishes a futures price and basis in a firm delivery window.
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HOW DOES IT WORK:
The producer agrees to sell a specific quantity of grain for a specific delivery period at a given futures and basis price.
WHEN TO USE:
  • When current prices represent an opportunity to lock in a desired margin level
  • Flexibility to participate in higher prices is not desired
  • Producers want to lock in profits
  • Producers have more production than they can store
ADVANTAGES:
  • The contract establishes a fixed price eliminating downside risk
  • Allows producers to lock in prices ahead of harvest
THINGS TO CONSIDER:
  • Price will not increase if the futures market rallies
  • Price will not increase if basis appreciates
  • If selling a deferred period, seller must maintain condition of stored grain ​

Average Price

A contract to sell grain that establishes price in a window that historical seasonal tendencies are typically the highest.
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HOW DOES IT WORK:
The producer agrees to sell a specific quantity of grain for a specific delivery period. The bushels are priced over the specified period resulting in an average of the prices observed.
ADVANTAGES:
  • Takes the emotion and stress out of the marketing decisions by automatically pricing.
  • Captures historically beneficial pricing windows and may provide a better price than harvest.
  • Diversifies and adds discipline to marketing programs.
  • 5 cent premium is added to enroll in corn program; Minus 1 cent Averaging Fee
THINGS TO CONSIDER:
  • Historical price patterns are not a guarantee of future prices.
  • Price received may not be the best versus the life of the contract average.
  • Price is an average. No attempt is made to delay or accelerate pricing based on market action during the averaging period.
  • Tends to work well in supply market years

DP Contract

A contract that allows the grower to haul their grain today, but to price it at a later date.
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HOW DOES IT WORK:
The Grower hauls grain to Zimmerman Feed & Grain, but does not want to price at that time. The DP contract allows the grower to move grain and wait to lock in a price until the contract reaches its expiration date or prices become more attractive and the grower wishes to sell.
ADVANTAGES:
  • Zimmerman Feed and Grain assumes risk of storing grain and keeping it in condition
  • Grower can wait until price becomes more attractive to sell grain
  • Grower can haul now and price later
THINGS TO CONSIDER:
  • DP contracts may have storage charges, which are set by Zimmerman Feed and Grain based on space availability, market conditions, replacement values, etc.
  • Price of grain may be highest when grain was delivered; there is no price protection should the market prices turn lower

Premium Offer

​A firm offer to sell grain that establishes a target cash price in a delivery period.
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HOW DOES IT WORK:
The producer agrees to sell a specific quantity of grain for a specific delivery period at a specified cash price.
WHEN TO USE:
  • Current prices represent an opportunity to lock in a desired margin level
  • Producer is looking for a scale up marketing approach
  • Market volatility is high
  • When a known profit margin is required in times of financial distress
ADVANTAGES:
  • Bushels are sold for profit
  • Allows producers to lock in prices ahead of harvest
THINGS TO CONSIDER:
  • Price will not increase if the futures market rallies beyond price target
  • Good documentation is encouraged
  • An excellent addition to a written marketing plan

Basis Only

A contract to sell grain that establishes a basis in a firm delivery window.
more info
HOW DOES IT WORK:
The producer agrees to sell a specific quantity of grain for a specific delivery period at a basis price. Futures remain unpriced.
WHEN TO USE:
  • When basis levels and delivery time table are desirable
  • Flexibility to participate in higher prices is desired
  • Producers are anticipating basis depreciation
  • Markets are inverted
ADVANTAGES:
  • Allows producers to participate penny for penny in all futures market rallies
  • The contract establishes a fixed basis price
  • Allows producers to lock in basis ahead of harvest
  • Zimmerman Feed and Grain may forward producers up to 80% of contract value to create cash flow on delivered, but still unpriced grain
  • Allows producers to avoid storage
THINGS TO CONSIDER:
  • Producers are still exposed to market risk
  • Price will not increase if basis appreciates
  • Producer has a deadline to make pricing decisions or rolling the contract
  • Producer should feel comfortable with spreads, especially in a carry market
  • Per bushel fee for execution may apply

Minimum Price

A contract to sell grain that establishes a minimum price while offering the flexibility to capture unlimited upside opportunity if the market improves.
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HOW DOES IT WORK:
The producer agrees to sell a specific quantity of grain for a specific delivery period at a given price. The minimum price is determined by subtracting the cost of the upside participation from the contracted price. Upon delivery the producer will receive the pre-established minimum price, unless the market is above the participation level at delivery. The producer may receive some or all of the market improvement above the participation level.
WHEN TO USE:
  • If downside risk is undefined or hard to define
  • When current prices represent an opportunity to lock in a desired margin level
  • Flexibility to participate in higher prices is desired
  • Market volatility is low to neutral
ADVANTAGES:
  • The contract establishes a floor price while retaining the ability to participate in higher prices if the market rallies.
  • Costs are deducted from delivery, not paid up front.
  • The contract can be customized to a producer’s individual situation with the ability to choose upside participation levels.
  • The grain-selling decision is less stressful due to the ability to participate in higher prices.
THINGS TO CONSIDER:
  • Prices may not improve before coverage expires, resulting in no gain.
  • Prices may rise and fall before coverage expires, also resulting in no gain.
  • Contract may not capture entire upside futures move.
  • Costs may be higher during volatile markets.

Hedge-to-Arrive

A contract to sell grain that establishes a futures only price with basis to be established at a later date.
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HOW DOES IT WORK:
The producer agrees to sell a specific quantity of grain for a specific delivery period at a given futures price leaving basis open during a specified window of time.
WHEN TO USE:
  • When current prices represent an opportunity to lock in a desired margin level
  • Flexibility to participate in higher prices is not desired
  • Producers are anticipating basis improvement
ADVANTAGES:
  • The contract establishes a fixed futures price eliminating downside price risk
  • Allows for participation in improving basis
  • Basis can be set at any time
  • Allows producers to lock in futures prices ahead of harvest
THINGS TO CONSIDER:
  • Price will not increase if the futures market rallies
  • Basis may deteriorate through the life of the contract
  • If selling a deferred period, seller must maintain condition of stored grain
ANTICIPATING ADJUSTMENTS AND BEST PRACTICES:
  • Have a basis target in mind to lock in
  • Per Bushel Fee for execution may apply

Feed Margin Management Tools

As a full service feed mill, we offer complete feed cost management for all major ingredients including: Corn, Soybean Meal, Dried Distillers Grain, Bakery and Byproducts. 

Grain Bank

Your physical grain is kept for you and fed as dictated.
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HOW DOES IT WORK:
The producer either buys corn ahead or delivers his own grain to the elevator. Corn is put into Grain Bank to be used in feed at a later date.
WHEN TO USE:
  • When price can be locked in at a profitable level
  • Producers have more production than they can store
THINGS TO CONSIDER:
  • Some storage charges may apply

Feed Cash Contract / Forward Contract

A contract to buy a commodity that establishes a price in a firm delivery window.
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HOW DOES IT WORK:
The producer agrees to buy a specific quantity of feed commodity for a specific delivery period at a given price.
WHEN TO USE:
  • When current prices represent an opportunity to lock in a desired margin level
  • Flexibility to participate in lower prices is not desired
ADVANTAGES:
  • The contract establishes a fixed price eliminating upside risk
  • Allows producers to lock in prices ahead of animal placement
THINGS TO CONSIDER:
  • Price will not decrease if the market falls
  • If buying a deferred period, buyer must maintain commitment
BEST PRACTICES:
  • Zimmerman Feed and Grain recommends to sell hogs at the same time as buying ingredients.
  • Zimmerman Feed and Grain cautions against having a leg “open” and being subject to a double market hit

Basis Only

A contract to buy grain that establishes a basis in a firm delivery window.
more info
HOW DOES IT WORK:
The producer agrees to buy a specific quantity of grain for a specific delivery period at a basis price. Futures remain unpriced.
WHEN TO USE:
  • When basis levels and delivery time table are desirable
  • Flexibility to participate in lower prices is desired
  • Producers are anticipating basis appreciation
  • Markets are at a carry
ADVANTAGES:
  • Allows producers to participate penny for penny in all futures market declines
  • The contract establishes a fixed basis price
  • Allows producers to lock in basis
THINGS TO CONSIDER:
  • Producers are still exposed to market risk
  • Price will not decrease if basis declines
  • Producer has a deadline to make pricing decisions or rolling the contract
  • Producer should feel comfortable with spreads, especially in an inverted market

"We are available to discuss the contract strategies that will best fit your farm.  Come talk to us, we welcome the opportunity to help."

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