Fremar LLC

Mission Statement: TO ANTICIPATE, MEET OR EXCEED OUR PATRON'S EXPECTATIONS WHILE PROVIDING LOCAL PROFITABILITY.

Grain - Feed - Agronomy - Petroleum         605-648-3941 or Toll-Free: 800-658-3544, Fax: 605-648-3943
General Manager: Steve Domm                                                      Main Office Hours: Monday - Friday    7:30 AM - 5:00 PM
Main Office: 44608 - 273rd Street, Marion SD 57043                                                                             Closed Saturday & Sunday

	Contracts

HEDGE-TO-ARRIVE MINIMUM PRICE Contract

FEATURES

* Delivery at a Later Date * Futures Market Portion Priced Immediately Tied to a Strike Price Acting as a Price Floor * Basis Priced at a Later Date using the then Current Basis * Payment Received Upon Final Pricing Unless Pricing Precedes the Shipment Period

DEFINITION

This contract incorporates the benefits of both the Hedge-To-Arrive contract and the Minimum Price contract. The seller has the ability to lock in the futures portion of the pricing but will also have the opportunity to capture higher prices if the market were to rally. The basis portion of the pricing on the cash contract will be completed at a later date. This alternative provides for future delivery of the grain with the basis portion generally priced prior to the delivery, while the seller can benefit if futures prices move higher during this same time period.

ADVANTAGES

* Allows the seller of grain the ability to benefit if futures market prices move higher. The ability to benefit from higher futures market is normally restricted to a certain time period.

* Provides a minimum price which the seller of grain will receive in the event futures market prices decline prior to the final pricing of the contract.

* Allows the seller of grain the ability to capture favorable carry charges when available without finalizing the pricing of the grain.

* The minimum price contract is a cash grain contract which may provide immediate payment to the seller. The payment is limited to the minimum price outlined in the contract.

* Provides time during which the seller of grain can price the basis portion of the contract. If the seller of grain feels the basis market will improve, this alternative provides the seller the ability to price the basis portion of the contract at a later date.

DISADVANTAGES

* The minimum price, which is guaranteed by the contract, is normally at discount to prices that can be received if one simply sells the grain.

* Use of the contract does not allow the seller the flexibility to arbitrage markets at the time of shipment.

* Does not lock-in the basis portion of the trade. The seller may be exposed to a potential future basis decline.

EXAMPLE

On April 1, the posted bid for Oct/Nov. delivery corn is $1.75 per bushel and the December futures level is $2.25. This is a basis level of 50 cents under the December. You like the futures level, but think the basis is historically wide and will narrow before you plan to deliver. You enter a hedge-to-arrive contract locking in the $2.25 Dec. futures level.

It is July 15th and the weather has turned hot and dry. You are concerned that the market will rally due to the dry conditions. The December futures are currently $2.20. you see that you can buy a $2.30 call option. You instruct FREMAR to purchase the call option and deduct the premium from the futures level of your Hedge-To-Arrive contract. Now you have $2.10 December futures and a $2.30 call option. On November 1st, the December futures level is $2.50 and the value of your $2.30 call is 25 cents. You instruct FREMAR to sell your call. The 25 cents premium is added back to your December futures level and your new level is $2.35. The current basis is 45 cents under the December. You set the basis on your Hedge-To-Arrive contract and your cash price is $1.90 per bushel.