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Contract Producer by lvw56778


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									Iowa State Presentation
         April 2006
        Neal Dueker
• Snapshot of West Central Coop
  – Headquarters in Ralston
     • Full service coop with grain, agronomy, seed, chemicals, feed
  – 17 elevators that buy grain
  – 4 UP shuttle loaders
     • Ralston, Jefferson, Gowrie, Jordan
  – 1 BN shuttle loader
     • Templeton
  – 1 IA Interstate train loader
     • Adair
• Contracts that we offer
   –   Cash Contract
   –   Cash Sale for Forward Delivery
   –   Price Later Contract
   –   Basis Contract
   –   Futures Only or Hedge to Arrive Contract
   –   Offer Contract
   –   Deferred Payment Contract
   –   Cargill and E-Markets Contracts
              Cash Contract

• Simplest contract
• Sell grain at current market price to a
  specific location
• No longer have to store the grain
• Can receive payment when grain is
 Cash Sale for Forward Delivery
• Lock in cash price for some future delivery
  period to a specific location
• Producer is obligated to deliver the grain at
  the specified time and location and is
  responsible for maintaining grain quality
  until then
• Producer is paid when grain is delivered
  during the specified time period
          Price Later Contract
• Allows the producer to deliver grain to the
  elevator and establish the price on or before a
  predetermined expiration date (currently Oct 4 for
• Elevator takes title of the grain when PL contract
  is written (could have FSA implications)
• Condition of the grain is elevator’s responsibility
  after the producer delivers it
• Some elevators may offer zero charge price later
  during the off season
• Otherwise, the producer may incur a service
  charge as well as storage costs
             Basis Contract
• Producer locks in the basis on the grain
• The futures price is still open until the
  producer sets that as well
• Title of grain is turned over (FSA
• A cash advance of approximately 70-80%
  of the value of the grain can be made to the
        Futures Only Contract
• Producer locks in CBOT Futures price
• Basis, and therefore cash price, is not set
• Elevator places hedges so the producer doesn’t
  have to worry about margin calls or fees
• Typically, minimum bushel requirement of 1000
• Can be rolled to next futures month for 2c fee
               Offer Contract
• Offer certain number of bushels for sale at a
  predetermined price for a selected delivery period
  and location
• If the market hits the predetermined price, the
  elevator fills that price with a regular grain
• Takes some of the emotion out of marketing
• Normally written to be valid for 30 day period
• After the 30 days, the offer contract expires, and
  the producer could write a new one at the same
  price, a new one at a different price, or do nothing
    Deferred Payment Contract
• Add-on contract to any grain sale
• Allows producer to take payment of grain
  that was delivered at some later time that is
  suitable for cash needs and tax purposes
• Title of the grain is the elevator’s
• Carrying costs are stopped and elevator is
  responsible for quality
Cargill and E-Markets Contracts
• Allows producers to set the futures price
• Basis is still up to the producer to set
• Producers can use futures averaging over a
  period of time (usually seasonal highs) to
  set futures prices, or they have some other
• There is a fee for these contracts
             Grain Marketing
• We try to work with the producers to help them
  (producers own the coop)
• We typically have informational grain meetings
  once a month
• We are available all week, either in person or via
  phone, to discuss marketing with producers
• Most producers will use a combination of the
  contracts that we mentioned today
• Grain Processing
  – How many plants are in operation
  – How this affects supply and demand on
    different levels
  – Implications of the industry
   Soybean Processing Industry
• Very mature industry
• Unlike the ethanol industry, the soy processing
  industry is dominated by 3 major companies
  (Cargill, ADM, Bunge) and a handful of smaller
• We have excess crushing capacity in the U.S.
• New capacity is being built in China
• Some U.S. plants have closed in recent years and
  some plants only run seasonally
        Iowa Bean Processors
• AGP-Eagle Grove, Emmetsburg, Manning, Mason
  City, Sergeant Bluff, Sheldon
• ADM-Des Moines
• Bunge-Council Bluffs
• CF-Creston
• Cargill-Cedar Rapids, Des Moines, Iowa Falls,
  Sioux City
• West Bend-West Bend
• West Central-Ralston
            Corn Processing
• Wet Mills
  – Large mills that make an array of products
    ranging from ethanol, sweeteners, starches, oil,
    gluten feeds, etc.
• Dry Mills or Ethanol Plants
  – Smaller mills that make basically 3 products
    (CO2, ethanol, and DDG’s)
– Currently, there are 95 ethanol plants in
  production in the U.S. with capacity of more
  than 4.3 billion gallons a year
– There are 31 plants and 9 expansions under
  construction with a combined capacity of more
  than 1.9 billion gallons
– (according to the Renewable Fuels Association)
Snapshot of typical ethanol plant
• “Cookie-cutter” plant consumes about 18 million
  bushels of corn per year (50,000 bu/day)
   – Example would be Coon Rapids
• Produce about 50 million gallons of ethanol per
• Most are locally owned coop ventures
• Most have about 10 days worth of storage
• Most are built in major corn growing areas and
  buy corn locally via truck and rail
            Snapshot (cont.)
• Ethanol plants typically get 80-90% of their
  corn from commercial elevators instead of
• Most have tough discount schedules due to
  lack of storage and fact grain goes right to
  – No grade averaging
  – Tough discounts on moisture above 15%
Iowa Supply and Demand
Breakdown of corn ending stocks
• World corn ending stocks at 130.2 mill
  metric tons (5.126 bln bu)
• U.S. corn ending stocks of 2.351 bln bu
  (45.86% of world stocks)
• Iowa corn ending stocks of 563 million bu
  – (23.94% of U.S. stocks and 10.98% of World
        Iowa Production and Exports

                    Iowa Corn Production, mln bu
97-98   98-99   99-00   00-01   01-02   02-03   03-04   04-05   05-06
1642    1769    1758    1728    1664    1932    1868    2244    2179

                    Iowa Net Corn Exports, mln bu
97-98   98-99   99-00   00-01   01-02   02-03   03-04   04-05   05-06
 459     546     659     637     744     875     772     666     724
    County Corn Production in 2004
•   Boone County- 28,450,000 bu
•   Dallas County- 23,890,000 bu
•   Greene County- 29,680,000 bu
•   Story County- 30,280,000 bu
•   Hamilton County- 31,830,000 bu

• 5 County production of 144,130,000 bu
• Or the equivalent of about 8 “Cookie-cutter” ethanol plants
• There is currently 1 ethanol plant in these 5 counties (Jewell), but will
  be 2 soon (Nevada)
• That will still leave over 100 million bu. of excess supply
County Bean Production in 2004
Boone County-56.9 bu ave. 6,850,000 bu
Dallas County-58.7 bu ave. 6,668,000 bu
Greene County-54.4 bu ave. 7,801,000 bu
Hamilton County-53.1 bu ave. 6,869,000 bu
Story County-59.1 bu ave.    7,068,000 bu

5 County Total 35,256,000 bushels
       What does this all mean?
• Ethanol is an important end-user of corn and
  certainly helps demand
• Iowa produces enough corn for the ethanol plants,
  livestock consumption, and exports out of state
• At times, we might compete with the ethanol
  plants for corn, but a lot of times we will be a big
  customer of theirs
• It will take an adjustment period to see where the
  grain and DDG’s will flow
• Sometimes we will have the best bid and
  sometimes the ethanol plant will have the best bid
  – West Central assumes no liability for the use of
    any information contained herein. Information
    contained herein was obtained from sources
    believed to be reliable but is not guaranteed as
    to its accuracy. Neither the information nor any
    opinion expressed constitute a solicitation for a
    specific transaction.

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