Market Loan and LDP Strategies

1
Market Loan and LDP Strategies

• Melvin Brees
• Extension Associate
• Farm Business Management

2
2001 Changes

• Payment Limitation Revised
• 150,000
• Eligibility
• PFC
• Non PFC (2000 only)

3
Market Loan and LDP Strategies

• Price Insurance
• Lower price risk
• Price Support
• Cash sales
• Price Speculation
• Enhance cash price with LDP

4
Price Insurance

• Store, Take Loan
• Store, Keep LDP Eligibility
• Free Put Option

5
Price Support

• LDP, Sell Grain
• 150,000 Payment Limit
• Loan
• Redeem w/Certificates

6
Price Speculation--Bull

• LDP, Store
• Lower Price Risk
• LDP, Store, Buy Put
• Limit Price Risk
• LDP, Sell, Re-Own Futures (Call)
• Limit Price Storage Risk
• Gives Up Basis Gain

7
Short Term Bull

• Loan
• 60 Day Repayment Lock-in
• Free Call Option

8
Price Speculation--Bear

• Keep LDP Eligibility
• Forward Cash Contract
• Hedge Futures

9
Protect the LDP

• Store, Buy Call Option (Futures)
• Double Long
• Cash, Futures
• Basis
• PCP/Cash Price

10
2001 Corn

• Positive SD Factors
• 1.95-2.35
• LDP?
• Market Carry
• Storage Signal
• Weak Basis
• Avoid Cash Sales

11
2001 Corn

• Store
• Keep LDP Eligibility
• Free Put
• LDP during harvest??
• Loan
• MLG
• 60 Day Lock-in

12
2001 Soybeans

• Supply Demand
• Production ??
• Record Use?
• S. America
• Weak Basis?
• Small Market Carry

13
2001 Soybeans (Bear)

• LDP, Sell
• Market Carry
• Discourages Storage
• Basis Gain?

14
2001 Soybeans (Bear)

• Tax Storage???
• Keep LDP Eligible, Store
• Free Put

15
2001 Soybeans (Bear)

• Tax Storage???
• LDP, Store
• Forward Contract Jan Delivery
• Buy Put or Sell Futures

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2001 Soybeans (Bull)

• Speculative Strategies
• LDP, Store (Short Term)
• Basis Gain
• Long TermRe-Own Paper

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2001 Soybeans (Bull)

• Speculative Strategies
• LDP, Sell, Re-Own Paper
• Futures, Call Options
• Basis Carry /lt Storage Cost

18
Questions????
Melvin Brees BreesM_at_missouri.edu