Growers in our region can depend on MFA’s grain system to sell and store their crop. MFA’s Grain Division offers a variety of grain marketing contracts along with experts who can help producers minimize risk and enhance profitability in today’s volatile commodity marketplace.
You trust MFA to provide crop inputs and services. Why not trust us to help sell your grain? MFA’s expert guidance and expansive network help you capture increased value and manage risk. We offer a number of flexible marketing options, including farm-to-terminal contracts that allow you to sell grain through MFA and deliver directly to the buyer. Plus, because MFA is a cooperative, our grain customers may be eligible for special tax benefits. Check with your MFA Grain Specialist to verify contractual terms and charges currently being offered and to discuss how these alternatives can fit into your grain marketing objectives.
A Basis Contract is an “unpriced contract.” This type of contract is similar to a Priced Contract in that the type of grain, quantity, quality, delivery period, and terms of sale are established. The difference is that a “basis” is established, instead of a flat price. The basis is the difference between the paying price for grain and a specific futures month (cash price – futures price = basis). A notable characteristic of a Basis Contract is that its final price may be significantly different from the price being paid for grain delivered at the time of pricing. No additional charges are associated with a basis contract other than brokerage costs for rolling a basis forward to deferred futures months.
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A “No Price Established Contract” (NPE) is also an unpriced contract. As with a Basis Contract, the type of grain, quantity, quality, delivery period, and terms of the sale are established. The NPE is different from a Basis Contract in that price is set at the elevator’s bid on the day of pricing, no free advance is given and a fee may be charged. Prevailing and anticipated market conditions may require that a fee be associated with a NPE Contract. If required, the fee is set forth in the terms of the contract and the seller is protected against subsequent increases. Since fee levels change with market conditions, the seller should compare the benefits and cost of a NPE Contract with other marketing and storage alternatives. A major benefit in using a NPE Contract is that it can later be changed into a basis contract or minimum price contract. A NPE provides greater long-term flexibility than a Basis or Minimum Price Contract.
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This is the most frequently used grain contract. The contract is made when the buyer and seller agree on price, quantity, quality, delivery period, and other specific terms that apply to the contract. With a “Priced Contract,” the seller has no additional responsibility beyond delivery of the contracted quantity of grain during the set delivery period. The delivery period may be for the next few days or it may be for a deferred period of up to one year away. A change in market price has no effect on the terms or price of the original contract.
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A Minimum Price Contract is a grain marketing alternative that combines a priced contract with an agricultural option. It’s like a Priced Contract, except the seller is able to gain from a subsequent price increase. The seller will receive any additional price increase upon final pricing.
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A Maximum Price Contract works like a Minimum Price Contract but it allows a buyer of grain to participate in a price decrease. In effect, you can purchase your grain and still have the ability to benefit from a price decline.
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A Deferred Payment Contract can be used with any priced contract. With this contract the seller can request that his payment of grain be made at a later date.
An Open Basis Contract is used when a buyer or seller likes the price level of the market but believes that the basis will improve or weaken. Specifically, an Open Basis Contract allows a buyer to:
At available locations, MFA grain merchandisers may be able to offer customers farm-to-terminal contracts. This type of contract allows growers to sell their grain through MFA but deliver it directly to the buyer, such as a feed mill, ethanol plant, exporter or processing facility. Growers can haul the grain themselves if they have the equipment, or MFA can arrange to have it picked up from the farm.
Customer Benefits | Forward Priced Contract | Basis Contract* | No Price Established Contract | Minimum Price Contract | Open Basis Contract |
Protected from price decline | Yes | No | No | Yes | Yes |
Gain with futures price increase | No | Yes | Yes | Yes | No |
Price change with elevator price | No | No | Yes | No | No |
Money available after delivery | Yes | Yes | 1 | Yes | Yes |
Price change with basis* change | No | No | Yes | No | Yes |
Additional charges or cost | No | 2 | Usually | 3 | No |
Used before grain delivery | No | Yes | Yes | Yes | No |
Used after grain delivery | No | Yes | Yes | Yes | No |
Used as storage alternative | No | Yes | Yes | Yes | No |
* Basis is the difference between the futures price and the elevator’s paying price.
1. Funds are usually not advanced to the customer until the grain has been delivered and priced. In those cases where a partial advance is given, the customer is normally required to pay an additional fee.
2. Under normal conditions, there is no added charge. In those cases where the basis is changed to another futures month, a minimal transaction fee is charged.
3. There is an initial cost for obtaining a futures option. That cost may be totally or partially recovered depending on subsequent market price changes.
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