If forecasts consider that the product price will rise on the market in the future, then commodities remain in the warehouse or premium contracts are concluded.
When marketing grain and oilseeds, customers most often opt for a futures contract. This not only fixes the desired delivery date but also qualities and all relevant monetary conditions. Such a contract serves to hedge against falling market prices and provide liquidity management.
As with storage, commodities are not sold, but the price difference between the commodities in the warehouse and the commodities regulated by a futures contract for a comparable product – on the NYSE Euronext (MATIF) commodity futures exchange, for example – is contractually fixed as a premium (spot market minus MATIF). The MATIF index acts as a kind of trend monitor and the farmer decides when to fix the final selling price for his stored goods at a later stage while keeping an eye on the MATIF index.
Landea contracts for wheat and rapeseed may be a good alternative to storage or a premium contract in the case of such market expectations for rising prices. The principle of all Landea contracts is based on a combination of selling the physical merchandise with the simultaneous purchase of the same merchandise volume from a reference contract with a preferable long term at the commodity futures exchange. With it, the farmer buys the right (option) and opportunity to resell the low-priced purchase at a higher price when the MATIF has reached an attractive level at a later point in time. The difference here is that the profit is paid to the farmer. The farmer does not need a stock market account, but actually trades on both markets (spot market and stock exchange) from a single point.
The contract price agreed at the cut-off date is obtained after physical delivery (ex harvest, for example) and, consequently, the farmer has immediate liquidity, unlike in the case of storage. The Landea purchase price is not the full MATIF rate but the payable option fee instead, which depends on the contract model. Landea models with minimum price and hedging against falling stock market prices can be selected and cost about as much as a storage fee. Contract types without price protection cost only 3 euros per tonne for wheat and only 5 euros per tonne for rapeseed, irrespective of the chosen maturity – even if, for example, they terminate in April of the following year. The farmer decides when to resell the purchased MATIF quantity within this time period. The difference between sales and purchase levels on the commodity futures exchange is paid out as profit.
Launched around four years ago with just a few Landea contract models, the Landea product line offers a wide range for every market expectation and market situation today. The demand from agriculture has also grown as a result: over the years, agricultural companies have used these marketing concepts in contract sizes ranging from 50 tonnes to several hundred tonnes.
Landea: information in brief
- With Landea, you focus on buoyant markets and optimise your marketing
- Landea can be a good, wise alternative to storage
- Landea option fee available from just 3 euros a tonne
- You have immediate liquidity once physical delivery is complete
- A contractual partner for spot markets and stock-market-based contracts
- Many years' experience, established contract models for security- and/or risk-oriented investors
- Daily transparency and update – email report on your market values
- You continue to determine the point in time when you trade
- You can even actively optimise average price models
- Landea – easily structured and field-tested in small 50-tonne increments
- You don’t need a stock market account