Basis Calculations

Benefits, Advantages, Risks, Promotional Points outlined for various contract types.

Benefits
- More flexible than a cash sale.
- Assists with cash flow and tax management.
- Payment can be deferred until delivery or into a new tax year.
- No margin money required for contracts.
- Grain can be sold prior to crop production.
- Opportunity to establish a fixed price and delivery period for grain.
- Eliminates risk associated with a declining futures market.
- Reserves space for future deliveries.
Risks
- The net price might not cover storage costs.
- Futures price and/or basis levels may improve after contract establishment.
- Producer must provide full tonnage and specified quality (grade).
Promotional Points
- Allows payment deferral into the new tax year.
- Guarantees a sale before grain production, eliminating futures price risk.

Benefits
- Features are easy to understand when explained/demonstrated.
- Establishes half of the price equation in advance.
- Allows amendment or rolling of the basis value, taking advantage of grain futures markets (fee required).
- Optimizes timing of pricing and delivery.
- Eliminates risk of widening basis.
- Stops storage costs once ownership transfers to AVC.
- Cash advance possible (up to 70% of contract value).
Risks
- Subject to futures risk.
- Delivery is required to fulfill contract.
- Further basis improvements are not possible once locked in.
- Title of grain legally transfers to AVC.
- Full payment due upon contract completion and futures locking.
- Requires knowledge of futures and basis history.
Promotional Points
- Focus on physical delivery and settlement.
- Complete pricing decisions remain for the future, protecting against adverse basis moments since the basis value is pre-established.

Benefits
- Basis can be set 30 days prior to designated delivery period (specific terms/protections apply).
- Eliminates risk of lower futures prices.
- Flexibility preserved for pricing basis.
- No margin calls for sellers.
Risks
- Subject to basis risk.
- Delivery of contracts is mandatory (5,000 bu size).
- Additional fees for smaller contracts (1,000 bu).
- Loss of future market rally participation.
- Knowledge of futures and basis history is required.
- Accrual of storage charges until basis is set for grain in storage.
Promotional Points
- Locking in futures price avoids downside market risk.
- Reserves space for future delivery while establishing commodity quantity, grade, and delivery period.

Benefits
- Uses breakeven information to create profit targets.
- Applicable to various commodities across different delivery periods and future months.
- Limitation on price changes advised (no more than 1-2 times) to retain trigger probability.
- Service provider monitors market for desired price.
- Flexibility to enter GPO anytime at various levels.
- Automatic execution reduces emotional impact of pricing decisions.
- Less time spent monitoring markets, more time on verifying marketing plans.
Risks
- Market may surge post-target hit after execution.
- Market may never reach target price.
Promotional Points
- Eliminates concerns over missed pricing opportunities.
- Introduces discipline in pricing decisions, contributing to best practices in marketing plans.

Contract Type	Abbreviation	Market Trend	Risks	Application of 'Best Practices'
Deferred Delivery	DD	Bearish Price may increase	Potential storage problems	Secure price and delivery in a bearish market
Fixed Basis	FB	Bullish Basis may strengthen	Futures price may decrease	Secure price and delivery in a bearish market
Futures First	FF	Bearish Futures price may increase	Basis may weaken	Store grain on farm and lock in a strong futures price
Grain Pricing Orders	GPO	Bullish Price increases after target is hit	Target may not be hit	Disciplined way to secure a favorable price

% Committed	Cash Price	Futures Price	Basis	Fees
DD	20	486	510	-24
Basis Only	30	506	497	9
Futures Only	10	513	514	4
GPO	30	494	511	-12
Spot Pricing	10	452	483	-31