Contract types

CHS SunPrairie  offers several different contracting options. Learn more about each contract type and how they work to see which is the best for you and your operation. Please call any of the CHS SunPrairie merchandisers if you have any questions.

Cash contracts
Hedge-to-arrive (HTA) contracts
Basis contracts
Minimum price contracts
Delayed price (DP) contracts

Cash contracts

These contracts allow the grower to lock in the full price for their grain today for either immediate or deferred delivery.

How does it work?

Grower agrees to deliver a specific quantity and quality of grain for a determined delivery period. Grower is paid CHS SunPrairie’s board price for their grain on the day it is sold.

Cash contract advantages:

  • Allows grower to lock in today’s price for their grain
  • If a grower likes next month’s price better they can lock that in and deliver later
  • Once the price is locked in there is no need to worry about fluctuations in price, the grain is sold
  • Grower knows what they will get paid when their grain is brought in (plus/minus any premiums or discounts)

Cash contract disadvantages:

  • Costlier to buy out of, relative to a few other contract types, if unable to deliver grain
  • Cash prices are not always available in later delivery periods
  • Grower is unable to capture any potential gains in futures or basis prices

Hedge-to-Arrive (HTA) contracts

These contracts allow the grower to lock in a futures price, for futures traded commodities, and price their basis at a later date.

How does it work?

Grower agrees to deliver a certain quantity and quality of grain during a set time period. The producer chooses the futures price level and the basis remains open and un-priced until it is set; on or by the date specified on the grower’s contract with CHS SunPrairie.

HTA contract advantages:

  • Lock in the riskiest part of contract price, the futures, while leaving the basis open in hopes for it to improve
  • Enables grower to lock in current futures price for grain at a later delivery date where cash bids may not yet be available
  • Easier/cheaper to buy out of if the crop does not get planted or if production is lower than anticipated

HTA contract disadvantages:

  • Grower is unable to take advantage of higher futures prices once the price is set
  • Contract does not offer protection in the event that basis levels drop or remain unchanged

Basis contracts

These contracts allow the grower to lock in their basis on their contracts but lock in futures at a later date.

How does it work?

Grower agrees to deliver a specific quantity and quality of grain for a determined delivery period. The basis is locked in on the contract at this time. The final price of the contract is determined at a future date, as indicated on the grower’s contract with CHS SunPrairie, by locking in the futures price and adding/subtracting the basis value on the grower’s contract.

Basis contract advantages:

  • Allows producer to sell their grain while locking in part of the price, waiting for higher futures levels to lock in the last portion of the price on the contract

Basis contract disadvantages:

  • Futures prices are not guaranteed to rise and could instead fall, meaning that the grower is locking in a futures price that is lower than the futures price of the day the basis was locked in

Minimum price contracts

This contract allows the producer to sell cash grain and continue to participate in the market for an investment.

How does it work?

The grower sells cash grain today and for an investment (determined by the market) chooses a month to “participate in the market” up until the end date for that specified month. This contract has unlimited upside potential. At any time during the life of the contract a grower may choose to reprice the contract if it has reached a desired level.

Minimum price contract advantages:

  • Get cash today and continue to participate with unlimited upside in the market
  • Invest in unlimited market upside and not delayed price charges
  • Opportunity to gain more value out of it

Minimum price contract disadvantages:

  • Potentially no upside can be captured due to lack of market movement

Example

Sell 10,000 bushels of Minneapolis Spring Wheat off combine for $5.72 (6.57 futures -.85 basis) and you want to participate in the month of March. We determine your investment to participate is $.20. You would receive a check for $5.52 (today’s cash price minus investment) and have the potential to capture any upside in the market until Feb. 23 (month of March end date.)

Delayed price (DP) contracts

These contracts allow the grower to haul their grain today but to price it by a date established by CHS SunPrairie.

How does it work?

Grower hauls their grain to CHS SunPrairie but does not like the cash price at the time. The DP contract allows the grower to move grain and wait to lock in a price until the contract reaches its expiration date or prices become more attractive and the grower sells.

Delayed price (DP) contract advantages:

  • CHS SunPrairie assumes risk of storing grain and keeping it in condition
  • Grower can wait to sell grain until price becomes more attractive
  • Grower can haul now and price later

Delayed price (DP) contract disadvantages:

  • DP Contracts usually have storage charges, which are set by CHS SunPrairie and based on space availability, rail performance and market conditions
  • Price of grain may be highest when grain was hauled, there is no price protection should the markets take prices lower

Questions about contracts?

Contact us