Wheat Options for Producers

Your need

You are a producer (seller) of wheat and would like to have protection against wheat prices falling but also have the opportunity to benefit if prices rise.

Solution

A wheat option allows you to remain at a floating commodity reference price while being protected should commodity prices fall below the agreed minimum price (put strike price), in return for your paying a premium.

How it works

After credit approval, you enter into a wheat option with the Bank. You will specify the put strike price, the transaction amount and the exercise date/s. The Bank will determine the premium.

Possible outcomes on the expiration date

• Commodity reference price is lower than the put strike price - the Bank must pay you the difference between the put strike price and the commodity reference price.
• Commodity reference price is equal to or above the put strike price - you and the Bank will have no further obligations to each other with respect to the wheat option. The result will be that you can sell your physical wheat at a price that is equal to or more favourable than the put strike price.

Benefits

• You receive protection against any fall in the commodity reference price below the agreed put strike price and the potential to benefit if prices rise.
• Can be customised, so you can determine the put strike price, transaction amount and exercise date/s.
• Are cash settled so no need to physically deliver wheat to the Bank.
• There are no complex exchange traded brokerage and margin calls.

Points to consider

• You have to pay a premium to the Bank as an up-front payment.
• You are not covered for the basis risk, which is the risk arising from entering into a hedge transaction that is not identical with the risk being covered.
• The wheat option may expire worthless resulting in the premium being an additional cost to you.

     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.