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

What is Daily Price Plus Contract?

The Daily Price Plus or accumulator contract provides the ability to market bushels every day of the contract period at a floor price level above the current futures level. Bushels will “accumulate” each day until either the contract period expires or a “knockout” price below the market is hit. Under the Daily Price Plus contract, if the futures price at expiration is at or above the “accumulation level”, the quantity of bushels initially committed is doubled. The first set of bushels will be entered at the “accumulation level” and the double up portion will be entered at the “double up obligation”. If the contract is knocked out the portion that has accumulated prior to knock out will be entered at the accumulation level and the balance will be entered at the guarantee level. The advantages of this contract include the ability to sell bushels above current futures values and the ability to contract any quantity of bushels; no minimum of bushels is required.

Daily Price Plus—Example
Current December 19 Futures: (CZ19) $3.93
Floor Price Level (accumulation level):

$4.10 ($.17 premium above current mkt)

Knockout Price: $3.55
Gaurantee Level: $3.80
Double Up Obligation: $4.20
Pricing Period: November 7, 2017 – November 21, 2018 (263 business days)
Committed Bushels: 5,000
Cost: 2 cent service fee which will be deducted from final futures pricing.
Potential Results

Scenario 1: No additional obligation
The market stays above the knockout price of $3.55 for the entire pricing period (263 days), but closes below $4.10 on November 21, 2018. All bushels initially contracted will be price at $4.10, and a futures contract or the pricing of a basis contract will occur at $4.10. Only 5,000 bushels will be owed. No additional bushel obligation is incurred.

Scenario 2: Double Up
The market stays above the knockout price of $3.55 for the entire period, but closes above $4.10 on November 21st, the day the contract expires. The first 5,000 bushels initially committed will be priced at $4.10. In addition, another contract for the same bushel amount of 5,000 bu. will occur at the double up obligation $4.20. Total of 5,000 bu. at $4.10 and 5,000 bu. at $4.20 will be owed. NOTE: If a contract is double on, a premium is not always given on the second set of bushels. Depending on what quote we use, sometimes the second set of bushels is committed at the accumulation level.

Scenario 3: Knock Out
The market touches $3.55 per bushel 132 days into the 263-day contact or 50 percent of the period. Therefore, 50 percent or 2,500 bushels contracted will be priced at $4.10. The remaining 50% or 2,500 bushel balance will be priced at the guarantee level of $3.80. A total of 5,000 will be owed.

Contact us for more details:

Anna Kaverman
Grain Originator
(419) 769-5403

Angie Bohman
Grain Originator
(567) 644-4605
Jerry Meyer
Grain Originator
(937) 441-0924
Jackie Sheridan
Grain Originator
(419) 852-8233

 

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