A Checklist Before a New Pricing Tool

Pricing tools accumulate. A farm that started with a spot sale adds a forward contract, then a basis contract, then a futures account, then an option someone described at a meeting. Each tool can be legitimate. The failure is adding one because the previous one felt incomplete, without writing what the new one locks and what it can demand from you on a bad week. Common contract-pricing mistakes are collected at https://goodsandgrain.trade/grain-contract-pricing-mistakes. Use this list before the signature, not after the surprise.

Say the name of the thing

Call it a cash forward, a basis contract, a hedge-to-arrive, a futures hedge, or an option. If the seller of the idea cannot say which of those it is, you are not ready to sign. Forward and basis contracts are compared at https://goodsandgrain.trade/forward-versus-basis-contracts. Options are a different animal, introduced with caution at https://goodsandgrain.trade/options-on-futures-introduction. A nickname is not a structure.

Write one sentence: this tool fixes this piece of the price and leaves this piece open until this date.

Match it to bushels you can stand behind

The quantity should be grain in a bin or grain you can lose a crop on and still deliver, with a plan for the shortfall. Pricing the same bushels in two tools is not diversification. It is a double obligation. If a buyer holds a forward sale and you also sold futures against those bushels, know whether that was the plan or a duplicate.

If the tool rolls into a later month, read who decides and what the spread can cost. Rolling mistakes are spelled out at https://goodsandgrain.trade/mistakes-rolling-a-futures-hedge.

Ask what it costs when you are wrong

Every open piece can move against you. A futures hedge can generate a margin call, explained at https://goodsandgrain.trade/margin-calls-plain-language. A cash contract can require delivery you do not have. An option has a premium you do not get back if it expires unused. Write the ugly case in numbers you can check with the broker or the buyer: what do I owe, or what must I deliver, if the market moves hard before the deadline?

If you cannot fund the ugly case, the tool is too large or the wrong shape. Shrink it before you admire it.

Who answers the phone

Name the person at the elevator and the person at the broker who will explain a fill in plain words. If those are the same person, know which hat they are wearing on a given order. Ask what statement you will receive and how often. A tool with no statement is a memory. Memories are weak documents.

Tell your lender if the lender has a claim on the crop. A pricing contract that surprises a lienholder becomes a second problem beside the price.

A cooling-off line

Read the deadline, the default clause, and the fees once more when you are not in the meeting. If the sentence about what stays open no longer makes sense, do not sign yet. New tools should reduce a risk you can name. They should not add a risk you cannot explain to someone who was not in the room.

This checklist is general education, not a recommendation to use any particular contract.

Frequently asked questions

Is a more complicated tool always more protected?

No. Complexity that you cannot fund or explain is a new risk. Protection is the piece you actually locked, on bushels you actually have.

Should I paper the whole crop at once?

Not by default. Size the tool to delivery you can make and to cash you can post. You can add later, on purpose.

Who should see the contract besides me?

Anyone who must deliver, finance, or explain it. That often includes a merchandiser, a broker, and a lender with a claim on the grain.