Accumulator Contract  12/03/15 10:40:00 AM

Accumulator Contracts
 
Are you interested in selling Oct 2016 corn for $4.00 and maybe Oct 2016 beans for 9.00?  How about old crop corn for delivery this summer for 3.90 or beans for 8.90?  We are currently looking into offering some accumulator contracts and are looking for producers who would be willing to commit a certain amount of bushels for these contracts.
An accumulator contract has two price targets, a “selling” price and a "knockout" price, with a specific time period and a target number of bushels. The “selling” price is typically set above the current price. Accumulator contracts are based off of an underlying futures price and the cash price would need to be adjusted for basis. Under the contract, an equal portion of the total number of bushels is sold at specified times based on closing futures prices. At each specified time, as long as the futures price remains above the “knockout” price and below the “selling” price, that portion of the grain is sold at the “selling” price. If the futures price drops below the “knockout” price, the contract is terminated, and any remaining bushels in the contract are unsold. But if the futures price rises above the “selling” price, the sale is still recorded at the “selling” price specified in the contract, and the amount of grain for that period's sale is doubled.
 Advantages –
                - Allows you to price your grain above the current price
                 - You accumulate priced bushels daily at minimal cost
                 - Reduces stress, frustration, and risk from marketing grain
Disadvantages –
                 - You might not accumulate pricing on the full contracted bushel quantity if the price falls below               the “knockout” price
                 - The daily settlement price may exceed the “selling” price
                 - You don’t know how many bushels will be priced until the pricing period is over            
 
                - Must be done in a set bushel increment with a potential of selling double the bushels                 committed
Example: On December 4, with December ,2016 futures at $3.90, you enter into an Accumulator Contract to sell 5000 bushels with a total potential of selling 10,000 bushels. The “selling price” is $4.25 and the knockout price is $3.85 with a weekly double. The pricing period is 30 weeks. So every week 166.67 bushels are priced at $4.25 CBOT futures if December futures trade between $4.25 & $3.85. If December futures close above $4.25 on any given week during the pricing period, 333.33 bushels will be priced. If December futures close below $3.85 on any given week during the pricing period, the contract is terminated and only the bushels already priced will need to be delivered.
 
Possible scenarios:
#1: December futures did not close at or below $3.85 during the pricing period. Also, December futures did not close at or above $4.25 during the pricing period. Therefore, all of the contracted bushels were priced at your $4.25 “selling” price.
#2: Fifteen weeks after you entered the contract, December futures close below the “knockout” price of $3.85. Therefore you have only priced 2500 bushels at $4.25 (assuming December futures did not close above $4.25).
#3: Fifteen weeks after you entered the contract, December futures rally and they close above $4.25 every week until the 30 week pricing period is over. Therefore for 15 weeks you priced 166.67 bushels per week. The last 15 weeks you priced 333.33 bushels per week. Your total priced bushel amount is 7500 bushels. All of the bushels are priced at $4.25.
The “selling” price and “knockout” price fluctuates on a daily basis and there are several different types of accumulators out there.  One “type” of accumulator doesn’t double the bushels up until the end of the period and only if the “selling” price is met at the end of the weekly pricing period and then it would be double the bushels committed.
 
 Please call with any questions or to let me know if you are interested in committing some bushels to an accumulator contract.
1-800-627-3528
 
Wil Manweiler
 
 
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