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Mercer Landmark, Inc.
Mercer Landmark :: Grain :: Daily Price Plus Contract

What is Daily Price Plus Contract?

The Daily Price Plus Contract provides the ability to market bushels every day of the contract period at a floor price level above the futures level that exists at the time the contract is created. Bushels will “build” each day until either the contract period expires or a “knockout” price below the market is hit. Under the Daily Price Plus, if the futures price at expiration is at or above the target price, the quantity of bushels obligated is doubled. If bushels are knocked out, the remaining unpriced bushels will be priced at a guaranteed floor price.

The advantages of this contract include the ability to sell bushels above current futures values, security of a guaranteed floor price if the market drops and the ability to contract any quantity of bushels; no minimum of bushels is required.

This product helps level out price risk with alternative cash contracts that simplify both decision-making and execution.

Daily Price Plus—Example
Current December Futures (CZ15) $4.14
Daily Price Plus Floor Price $4.40
Gauranteed Floor Price $4.10
Knockout Price $3.40
Pricing Period Jan 27 – Nov 18 (207 Trading Days)
Cost Service Charge Varies
   
Potential Results

Scenario 1
The market stays above the knockout price of $3.40 for the entire pricing period (207 days), but closes below $4.40. All bushels initially contracted will price at $4.40, and a HTA contract or the pricing of a basis contract will occur at $4.40. No additional bushel obligation is incurred.

Scenario 2
The market stays above the knockout price of $3.40 for the entire period, but closes above $4.40. All bushels will be priced at $4.40, and a HTA or the pricing of a basis contract will occur at $4.40. In addition, an equal number of bushels will also be priced at $4.40 (the obligation is doubled). The additional bushels become a new HTA or can be used to price a previously established basis fixed contract.

Scenario 3
The market touches $3.40 per bushel on April 20, 60 days into the 207 period or 30% of the period. Therefore, 30% of the bushels contracted will be priced at $4.40. The remaining 70% will be priced at the guaranteed floor price of $4.10, which will be $.70 higher than the current market of $3.40.

Contact us for more details:
Anna Kaverman at (419) 769-5403

For questions or comments, contact webmaster@mercerlandmark.com.