AGRICULTURAL COMMODITY FORWARD MARKETS AND PRICING STRATEGY

Course Length

1.5 hours

Overview

This course helps equip you or your producers with the skills and tools needed to maximize the profitability of grain sales and reduce risk factors that contribute to monetary losses. A component of the Commodity Marketing & Risk Management suite of courses, this course helps you apply the basics of markets and trends to more complex problems and strategies. By applying these basics, you will be able to take the first steps towards planning their own price risk management program.

Course Topics

• Forward markets, future exchanges, and forward cash contracts
• Forward price structure, forward price relationships, and basis
• What is a ‘hedge’?
• Forward cash contracts
• Introduction to options
• Price floor strategies
• Deductibles, puts, collars, and calls

Knowledge and Skills

In this course, you will learn to:

• Describe the components of the forward market structure
• Describe two avenues of price risk management
• Apply knowledge of forward markets to your marketing
• Explain what ‘basis’ represents and how it is determined
• Identify the characteristics of the futures exchange
• Describe the components of a futures contract
• Describe how to use a broker to enter the market
• Define the two market channels of the forward price structure
• Identify the terms associated with forward price relationships
• Define ‘basis’ and explain how it is used in forward marketing
• Describe hedge
• Interpret a T-Account
• Describe how hedging is used as a financial tool
• Recognize and name the benefits of forward cash contracts
• Recognize how forward cash contracts are used to manage price risk
• Describe specific terms of six types of contracts
• Describe how options on future contracts are used in the risk portfolio
• Describe how options premiums are established
• Define terms associated with premiums
• Explain how an option is liquidated
• Calculate a futures price floor strategy
• Calculate a cash price floor strategy
• Create a synthetic long put
• Use a synthetic long put to create a price floor strategy
• Compare differences between a long put and a synthetic long put when used as a price floor strategy
• Combine a long put and a short call to create a price collar strategy
• Use a price collar strategy to protect a long cash position