Final Presentation English Course

8/6/2019 Final Presentation English Course

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Corn trading:

Contract Farmingscheme.

Alejandro Marin Sanchez

Chapingo, Mexico; May 24th, 2011


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ContentIntroduction.

Mexican Governmentsprograms review.

About ASERCA.Contract Farming

Scheme.


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IntroductionThe production of corn in Mexico has beencharacterized as:

Yellow corn: Deficit.

White corn: Surplus, but there is a problem!Regionally:

Sinaloa for autumn-winter agricultural cycle.

Jalisco, Guanajuato, Michoacan, Chiapas for

spring-summer agricultural cycle.


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Introduction

Surplusproductionzones

Consumption zones

White Corn Production &Consumption

Productionareas farfrom areas ofconsumption


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Introduction

Therefore, determining the priceof corn for harvest time, hashistorically been a real serious

problem.

In the past worked Conasupo, whowas the market regulator, but no

longer exists.

Currently, ASERCA is the entityresponsible for regulating the

market.


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Mexican Governments programs

review.About ASERCA.

Contract Farming Scheme.

Problems with the scheme.

Conclusions.


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Mexican Govermentsprograms

In response to theproblem:

The government hasimplemented, since the

nineties, several programsto support both partiesinvolved in trading

process:


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Mexican Goverments programs




Conclusions.


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What is ASERCA?Support and Services for Agricultural Trading(ASERCA),

Decentralized administrative part of the Ministryof Agriculture, Livestock, Rural Development,

Fisheries and Alimentary (SAGARPA),

Purpose of having an instrument for promotingthe trading of agricultural production for thebenefit of producers of the field.

Source: http://www.aserca.gob.mx


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ASERCA

FunctionsTwo core functions:

Strengthening the agricultural trading aboutgrains and oilseeds:

Operate and administer the Direct FieldSupport Program (PROCAMPO)

Source: http://aserca.gob.mx


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ASERCAs supports

structurePrevention and RiskManagement Program.

Income Target and TradingComponent.

Support concepts:

Complementary support to incometarget

Support basis compensation on

contract farming


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Regulation of

marketsSupports directed to:Displacement ofsurplus crops.

Crops whit marketingproblems in specific time andplaces.

Promotion ofsales contractsbetween producers andbuyers.


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Mexican Governments programs


Contract FarmingScheme.

Problems with the

scheme.


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Contract Farming

schemeContract farming (AxC) isdefined as the operation in

which the producer sells itsproduct to the buyer beforetheplanting and/or

harvesting period, throughholding sales contracts.Crops eligible for contract

farming correspond to


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Contract Farming

schemeEligible crops:Corn

Wheat BreadDurum Wheat

Sorghum

Safflower

(grains andoilseeds)

CanolaCotton

Rice

Soybean

Sunflower


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AxC Price

determinationPrice in Contract Farming=

Price in Futures exchange in themonth immediately after delivery

+

Standardized Basis Consuming Zone-

Maximum Basis Regional


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AxC Price

determinationPrice in Contract Farming=

Price to be paid to Producer in

Production Area

Will be determined in US Dollars

To be paid in pesos according the

FIX Dollar Exchange published byBanxico (Bank of Mexico) for the

billing date.


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AxC Price

determinationPrice in Futures exchange in themonth immediately after delivery

=

Settlementprice of the futures contractobserved in Chicago Mercantile Exchange

(CME, before Chicago Boar of Trade - CBOT)

Contract month immediately following thedelivery of physical product given at the

time of registration, as published by ASERCAthe day you take the hedge of this contract


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AxC Price

determinationStandardized Basis Consuming Zone=

As published by ASERCA in DOF

according to the historical behavior ofthe past five years, international market

conditions and supply and demand

determined as the difference betweenproduct price in consuming area and the

futures price on the CME.


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AxC Price

determinationMaximum Basis Regional=

According to the geographic area of influence in the region

Determined according to the costs offreight, storage and financial

resources to bring the product fromproducer to consumer zone area

Published in DOF (Official Journal of the Federation)


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ExampleASERCA published the registration of contracts, on November26th, 2010 for the Corn crop cycle autumn-winter 2010/2011

Registration of contracts period was from the november 29th,2010 to the March 15th, 2011.

Harvesting period is from May 1st to June 30th, 2011.

The basis for Sinaloa was:

Standardized Basis Consuming Zone = 58 USD/Ton

Maximum Basis Regional = 38 USD/Ton

Basis to be paid to Producer = 20 USD/Ton


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Example

Haga clic para modificar el estilo de texto del patrnSegundo nivel

Tercer nivel

Cuarto nivel Quinto nivel


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Example

The price of the futures contract forjuly2011:November 29 = 564.25 cents/bushel = 222.14 USD/Ton

December 29 = 634.50 cents/bushel = 249.79 USD/Ton

January 29 = 659.75 cents/bushel = 259.73 USD/Ton

February 28 = 726.75 cents/bushel = 286.11 USD/Ton

Conversion factor: 1 metric ton = 39.36825 bushels


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Example


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AxC Hedging with

Options on FuturesSupport is given to the producerand/or the buyer to cover a

percentage of the premium cost ofhedging

Designed to protect the expected

income of producers and buyers ofagricultural products

Promote financial culture about

business risks management on the


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AxC Hedging

ASERCA will support all or part ofthe premium cost of buying

options on futures:Producer: CALL option.

provides protection againstraising prices.

Buyer: PUToption.

provides protection against


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Mexican Goverments programsreview.

About ASERCA.



Conclusion.


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Reportedproblems

according toexperience

Different prices for the sameproduction area, even the samestorage warehouse.

Different prices in pesos for thesame contract as the date ofdelivery by using the exchange

rate.

Producers prefer full paymentfrom the date of billing and not

want to wait the benefits of


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Mexican Goverments programsreview.

About ASERCA.



Conclusions.


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Conclusions

The scheme is very interesting interms of concept.

If producers understood correctlythe operation of the scheme, theymight have large benefits.

It is necessary to promote themanagement of risk hedgingthrough greater disseminationabout the futures and options on

futures.


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Thanks!Alejandro Marin Sanchez

Final Presentation English Course

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