Scenario #1: Futures prices change little from harvest to spring Scenario #2: Futures prices rise $1/bu. from harvest to spring Scenario #3: Futures prices fall $1/bu. from harvest to spring ate Cash Options Basis October Harvest 50,000 bushels With July futures trading Minimum price Date Cash Futures Basis Date Cash Futures Basis of corn. Local elevator is at $5.80/bu., the established* (aka worst bidding $5.15/ bu. The producer buys 10 case scenario) is October Harvest 50,000 bushels July futures at $5.80/bu., Minimum price October Harvest 50,000 bushels July futures at $5.80/bu., Minimum price producer decides to contracts of 580 July put $5.80 + (-$.15) - $.47 - $.01 of corn. Store grain buy buy 10 contracts of 580 established* (aka worst of corn. Store grain buy | buy 10 contracts of 580 established* (aka worst hold grain in storage and | options, at a premium of = $5.17/bu. put options on July July put options, at a case scenario) is put options on July July put options, at a case scenario) is buy put options on July 47 cents/bu. *Assumes the basis futures. premium of $.47/bu. $5.80 + (-$.15) - $.47 . futures premium of $.47/bu. $5.80 + (-$.15) - $.47 - futures reaches 15 cents under the $.01 = $5.17/bu. $.01 = $5.17/bu. July contract mid-June Sell 50,000 bushels of July corn futures at What is the basis in June? June Sell 50,000 bushels of July corn futures at What is the basis in June? mid-June Sell 50,000 bushels of With July corn futures at What is the basis in June? corn to the local $6.80/bu., the 580 puts corn to the local $4.80/bu., the 580 puts corn to the local $6.00/bu., the 580 puts elevator for $6.57/bu. are worthless - let them elevator for $4.57/bu. are worth $1.00/bu. Sell elevator for $5.77/bu. are worth less than 1 expire them for a $1/bu. gain. cent/bu. Let them expire Results What did you receive in | What was your gain or What final price did you Results What did you receive in | What was your gain or What final price did you Results What did you receive in What was your gain or What final price did you the cash market? loss on the put options? eceive for your corn? the cash market? loss on the put options? receive for your corn? the cash market? loss on the put options? receive for your corn? $/bu. $/bu $/bu $/bu. $/bu $/bu $/bu. $/bu. $/bu $total $total Stotal Stotal $total $total $total Stotal $total