Navigating Market Volatility: How an Average Price Contract Can Strengthen Your Grain Marketing Strategy

Charlie White, Vice President of Grain

A diversified approach to marketing grain can assist in managing volatility in the market. The Average Price contract allows you to set a base for your marketing plan. Out of the previous 10 years, seven of those years, the markets have set the highs for the year in a five-month span between March and July.

5 YR Avg New Crop Corn Seasonal

5 YR Avg New Crop Soybean Seasonal

The average pricing contract will market a portion of grain committed every day the CBOT is open using the closing price of the day. For example, if you choose to market 5,000 bushels and the pricing window is 42 days long, IAS will price 119.05 bushels per day.

Standard pricing window:

Corn Pricing Window May 1 – June 30^th (42 pricing days)

Soybean Pricing Window April 18^th- June 15^th (42 pricing days)
 

Flexibility with the average price contract includes:

·      Forward Contract (futures and basis set) or HTA (futures only set)

·      Standard pricing window or customizable pricing windows

·      Ability to price out remaining unpriced bushels at any time

·      Minimum Threshold sell price

·      Futures months and delivery points

·      Bushel volume (no minimum)

The Minimum Threshold sell price will pause the contract from pricing on days the market is below the set threshold price. Once the market meets or exceeds the minimum threshold sell price, it will price that day’s bushels and catch up on the days pricing that was missed. When utilizing the Minimum Threshold, the contract may price zero bushels, or it may price less than the contracted bushel amount. The day’s CBOT close will be used on all daily pricings.