Cash Flow Contract is a CME Lean Hog Futures based contract that covers several delivery months using the price average as the base contract price.
Producers Livestock averages a series of futures contract prices into a single price based on which ones you want, and then sets that as the contract price for all of the hogs you want to deliver during the contract time period (be that as few as four calendar months, or as many as fourteen). You choose the amount of pounds you wish to deliver per month, the months you want to deliver on and the target price you want locked in. Producers locks it in, sets the contract price, and covers all margin funds and fees. It's a great tool to use for profit margin management and to stabilize your cash flow!
It's a single contract with as many delivery months as you want (limited only by how many futures months are traded), and all at the same base price. You can also stair-step up your sales and have multiple Cash Flow Contracts if you wish. And deliver to any packer, and change delivery points while under the same contract. That's price protection, cash flow stability, and lots of flexibility all built into the same contract!
We place the futures hedges and handle all of the margin requirements. You get a multiple month contract with the same price spread across all of the months that you've requested and pay a small fixed service fee after the positions are locked in. When you deliver, the hogs are sold against your contracted hedge price average. You stand the gain or loss of the actual basis spread for the futures price sold and delivered against for the period, and receive all of the gain or loss of the actual futures hedge. Producers markets the hogs to the packer of your choice and handles the entire cash/futures transaction for you. You get all of the information on the cash and futures transaction/s in your settlement check. It couldn't be simpler.
What Producers does is covers the trade and advances or withholds cash to create a price average - the fixed single base price that you have locked in under contract. By having that same fixed price, it stabilizes your cash flow, because it's the same price for every month. Some producers who have left contract hog production to become independent hog producers again, enjoy the stability of the consistent cash flow month-to-month. That's typically because they've gotten used to the contract cash payments of their "former" life when contract producing. But they're not alone. More and more independent hog producers enjoy having a portion of their hogs locked in at the same base hedge price month-to-month because it removes some of the cash flow variability from their business and provides a more stable cash flow.
And locking in a profit and a more stable cash flow at the same time is just good business.
Territory East of Des Moines, Iowa
Territory West of Des Moines, Iowa