Market Data, Inc. - A Farm Profit Enhancement Service PO Box 90 Oberlin, Kansas 67749
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Futures Price Check Call Options Review Put Options Review Crop Tour Target Price Worksheet Min - Max
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Min - Max Review

Min - Max Review

             
   
A. CURRENT FUTURES PRICE ON: < current futures price could sell at         
                     
1. STRIKE PRICE OF PUT OPTION TO PURCHASE or BUY: AT COST OF      
2. STRIKE PRICE OF CALL OPTION TO SELL:   PREMIUM OF      
                     
3. Take to Put Option cost paid less the Call option premium received to get a NET COST of -0.1000 < on options    
                     
B. HOW DOES THIS WORK? Assuming a TOTAL Production cost per bushel of < cost per bushel
                     
1. A producer is looking at 100% acres of crop with a yield of 50,000.0 < crop bushels    
                     
2. Feels the market could move higher but wants to protect the downside on 30,000.0 < Options bushels
                     
3. This equates to a total number of PUT Option contracts to purchase of 6.00 < Commission    
4. AND also relates to a total number of CALL Option contracts to be sold of 6.00 < Commission    
                     
5. Assuming an INITIAL MARGIN per CALL Option sold of equals funds 6,000.00 < ask broker for $
  (These funds are returned once the contract is purchased back or is used to offset margin calls at the end)    
                     
6. PLUS: Cost of PUT Options at the Price shown in A. 1. above times: 30,000.0 9,600.00      
                     
7. Equals Funds that would need to be sent to the Commodity Account initially of at least > 15,600.00      
                     
C. WHAT PRICE PROTECTION DOES THIS GIVE THE PRODUCER?          
                     
1 The MINIMUM PRICE is figured by taking the PUT Option Strike price of 3.30        
2. Less: The Cost of buying the PUT Option or   -0.32        
3. Plus: The Funds received back from selling the CALL Option 0.22        
4. Less: The Cost of the Commissions on both the PUT and CALL Options -0.04        
                     
5. EQUALS THE MINIMUM FUTURES PRICE FOR PRICING THE GRAIN OF 3.16 -0.14 net options cost.
6. LESS: The localized Cash Basis (negative basis) that applies to your area < enter per bushel    
                     
7. EQUALS The MINIMUM estimated price to the Producer of 3.00        
                     
8. PLUS: The difference in the Option Strike Prices between the PUT & CALL 0.50        
  (A.2 above less A.1)                
                     
9. EQUALS The MAXIMUM estimated price to the Producer of 3.50        
                     
D. WHAT HAPPENS IF THE MARKET MOVES UP by per bushel. or DOWN by    
  and stays at this price level until the options expire.          
                     
1. With a MOVE UP, A producer would have margin calls of 0.54 per bushel.        
  as the sold CALL was just 0.46 above the current futures price plus the value of the    
                     
2. Your cash grain price would now be based on a futures price of 4.34   2.34    
  LESS: The localized Cash Basis (negative basis) that applies to your area -0.16   -0.16    
3. Equals the Cash price to receive on the grain or your crop insurance of 4.18   2.18    
                     
4. LESS: The loss on the sold CALL Option of   -0.54   0.00    
                     
5. EQUALS THE PRICE TO BE RECEIVED ON THE GRAIN SOLD OF 3.64   2.18    
  (This is also 3.80 less the basis level assumed -0.16 ).        
                     
6. LESS: The total NET cost of the options and commissions of -0.14   -0.14    
7. PLUS: The Profit from the PUT Option if the market goes down is NA   0.96    
                     
8. EQUALS a NET PRICE OF       3.50   3.00    
                     
9. LESS: YOUR COST OF PRODUCTION SHOWN ABOVE:   -2.50   -2.50    
                     
10. Equals Profit (loss) per Bushel under this program of: 1.00   0.50    
                     
E. THE KEY QUESTIONS TO ASK YOURSELF BEFORE DOING THIS ARE:          
                     
1. What level of profitability do the prices shows in D. 8. provide for my farming operation?      
                     
2. How much of my crop would I sell at the cash price level shown in D. 8. ?        
                     
3. Do I have CRC or RA+ crop insurance of offset the risk of non-production that would occur should the bushels not be
  produced so they can be sold to offset any margin or loss from the sold CALLS?        
                     
4. Do I have the availablity to meet margin calls that may occur under this program? Remember that in order to achieve the
  HIGHER price you need to see the futures MOVE UP or higher and this does mean that margin calls will occur - BUT -
  which would you rather sell for 3.50 a bushel or 3.00 a bushel?        
                     
5. This should NEVER be done on more than 90% of your irrigated CRC bushels or 75% or your dryland CRC bushels
  but can be done on up to 100% of any bushels covered with RA+ crop insurance. Also you need to combine any bushels
  already sold or short hedged or under some sort of marketing contract that has a penalty for non-production with the
  number being marketed under this program to see that the 90% on irrigated and 75% on dryland rule is NOT violated.