Guaranteed Minimum Price (GMP)

Purpose:

To sell grain at an established price and maintain potential for price improvement with no downside risk.

When To Use:

1. When cash prices have reached your objective, but you feel prices may go higher.
2. To allow delivery and partial payment of grain, but maintain upside price potential.
3. When there is strong possibility the futures market will go up significantly

Advantages:

1. Reduces market risk when selling new crop grain long before crop is harvested.
2. Establishes a floor under the market.
3. Allows you to sell grain, but rewards you if the market goes higher.
4. No Margin calls.

Disadvantages:

1. It is a losing transaction if the market goes down.
2. It is a losing transaction in a sideways market

Execution:

1. A beginning cash price is established.
2. A futures month and a Strike Price are established along with a Final Pricing date and the premium cost.
3. The minimum price is established by subtracting the premium from the beginning cash price.
4. The final price is established when the remaining premium is added to the minimum price.