Corn Collar for Consumers

Your need

You are a consumer (buyer) of corn and would like to have protection against corn prices rising but also have the opportunity to benefit to some degree if prices decrease, at a zero or reduced premium.

Solution

A corn collar allows you to remain at a floating commodity reference price while being protected should the commodity reference price rise above the agreed maximum price (call strike price). In exchange for a lower or zero premium you will forgo the benefit of the commodity reference price falling below a minimum price (put strike price).

How it works

After credit approval, you enter into a corn collar with the Bank. You will specify the agreed call strike price, the transaction amount, the exercise date/s and maturity date (expiration date). The Bank will determine the put strike price and any premium. Usually collars are structured on a zero premium basis.

Possible outcomes on the expiration date

• Commodity reference price is higher than the call strike price - the Bank must pay you the difference between the call strike price and the commodity reference price.
• Commodity reference price is lower than the put strike price - you must pay the Bank the difference between the commodity reference price and the put strike price.
• Commodity reference price is equal to or above the put strike price and equal to or below the call strike price - you and the Bank will have no further obligations to each other with respect to the corn collar. This means, you can buy physical corn at a price that is equal to or above the put strike price and equal to or below the call strike price.

Benefits

• You receive protection against any rise in the commodity reference price above the agreed call strike price.
• You can take advantage of price movements in your favour down to the agreed put strike.
• Can be customised so you can determine the call strike price, the transaction amount, the exercise date/s and expiration date you require.
• Can be structured on a zero premium basis.
• Are cash settled, so there is no need to physically deliver corn to the Bank. 
• There are no complex exchange traded brokerage and margin calls.

Points to consider

• The call strike price may be higher than the comparable fixed rate (corn swap rate).
• Participation in commodity reference price movements below the call strike price is limited to the put strike price.
• An amount may be payable by you or to you if the corn collar is terminated prior to its scheduled expiration date depending on its mark to market value.
• A premium may be payable by you to the Bank as an up-front payment.
• A corn collar does not cover the basis risk, which is the risk arising from entering into a hedge transaction that is not identical with the risk being covered.

     Like to know more?

• You'll find more detailed examples, including pricing on our secure commodities website. Register Here
• Email us to schedule a contact time to discuss your commodity requirements.
• Call us on 1800 633 957 from 8am to 5pm (Sydney time) Monday to Friday.