Commodity Contract & Market Valuation

Transcription

1 Commodity Contract & Market Valuation Presented by: Allen Smith and Kyle Klenke John Deere Agri Services 2009 Customer Conference February 18-20, 2009 Orlando, FL

2 Copyright 2009 John Deere Agri Services, Inc. (JDAS), Alpharetta, Georgia USA. All Rights Reserved Worldwide. This bulletin contains proprietary and confidential information owned by JDAS, and which is subject to laws, regulations, and treaties, and the provisions of your JDAS license agreement. Any copying, dissemination, or use of this bulletin or its contents without prior written consent from JDAS is expressly prohibited. Products mentioned herein may be trademarks or registered trademarks of their respective companies. Commodity Contract & Market Valuation Page 2 of 38

3 Table of Contents OBJECTIVE... 4 COMMODITY CONTRACTING... 5 Contract Setup Review...5 Contract Information...5 Contract Types...10 General Information...11 Available Fields Purchase...13 Available Fields Sales...15 Price Formula Purchase...15 Price Formula Sales...16 Remarks Purchase...17 Remarks Sales...19 Market Evaluation Purchase...19 Market Evaluation Sales...20 Contracts...20 Contract Specific Discounts...21 Contract Discounts...21 Delivery/Pricing Schedules...24 Pricing Un-Priced Contracts...25 Contract Cancellation...27 Contract Form Assignment...29 MARKET VALUATION Market Situation Setup...30 Market Situation Report...31 Market Prices...32 View/Edit Futures Prices...32 Market Basis Prices...33 To Arrive Report...36 NOTES Commodity Contract & Market Valuation Page 3 of 38

4 Objective This session will explore methods in which you can use AGRIS V9 Commodity Contracting to improve your productivity and efficiency and make your contracting tasks a whole lot easier. You will learn about the various contract types and uses for each contract by looking at the various fields that may be either required or made optional during contract entry. You will also discover how the setup of the Market Situation categories (commodity, merchandiser, market region, inventory location, and others) will determine what can be grouped together to minimize the effort for basis entry using the new pricing grid in AGRIS V9.5 in preparation to run mark to market reports for valuing undelivered contracts. Commodity Contract & Market Valuation Page 4 of 38

5 Commodity Contracting Contract Setup Review Contract Information Each of the individual sections of the screen shot above is explained below. Note that much can be done within the AGRIS system to customize its appearance and use. Miscellaneous Price Fields Descriptive titles may be assigned to the twelve optional Miscellaneous Price Fields, which are available on each contract. They may be used in a formula to validate the scheduled price of a contract and the net profit when bringing contracts to market. Through the AGRIS Report Writer, the values in these fields may be used in calculations for printing on reports. These fields may also be used to create A/P vouchers for specific pricing components at settlement time. An example of this may be Fumigation when the cost of the activity is estimated at a per unit rate during contract entry and later edited to reflect the actual cost payable to a private fumigation company. The anticipated cost of fumigation can be used in calculating the total selling (or purchase price) of the grain. Commodity Contract & Market Valuation Page 5 of 38

6 Date Description This field appears on the pricing screen of a contract and is labeled on this setup screen. An example may be Expire Date. This field then could be used on contracts that have expiration dates. This field can be used during sorts so that a report could be designed to give the user a list of all contracts by expiration date. Pending Contract Reasons Titles may be assigned to nine Pending Contract Reasons. They appear on the first screen during contract entry. A contract entered in with a pending status does not update the hedge position. An example of a pending contract is Offers. The contract can be entered into the system with a pending status. If later the contract is accepted, the status can be changed to active and the contract will then affect the position. Market Situation This section establishes which fields are used to define the different basis situations that might be used to bring contracts to market. If a field is marked with a Y, then during contract entry the corresponding field should be made required. The same applies in the Market Prices option where the basis amounts are entered. The effects of setup here will be discussed later in the session and are covered in detail beginning on page 31 of this document in the section named Market Valuation. Commodity Contract & Market Valuation Page 6 of 38

7 Default Purchase/Sales P or S may be entered in this field to indicate how you prefer the system to default when adding a new contract. P in this field indicates Purchase while S indicates Sales. Default Type Indicate in this field the Contract Type that is used most often when adding a new contract. Default Quantity Base Note: There are 5 different Quantity Base selections available when entering a new contract. o o o Q indicates that a specific quantity is assigned to each delivery/pricing schedule of the contract. L indicates that for the quantity entered on each schedule, there are a specific number of loads to which the quantity corresponds. O indicates that applications can continue to be made to this contract even though the amount that the contract was first written for has been exceeded. Note: After determining the O type of contract is filled, the quantity base needs to be changed to a Q. This will cause the application type to be changed to F (filled) and prohibit the contract from being available during ticket application. o T type contracts are similar to Q type contracts except that when there are multiple schedules, a quantity does not have to be specified for each schedule. Instead, the quantity is specified for the entire contract. An example may be that a contract has 2 different prices because of different delivery locations. The original amount of the contract is assigned to schedule 1 while schedule 2 has no quantity assigned. Ticket applications may be made to either schedule. This type of contract cannot be overapplied. When the total quantity is reached, the system will automatically set the scheduled units on each application to match the applied units. o M type contracts are similar to T type contracts except that they are loads-based rather than quantity-based. Default Advance % When Advances are issued, what is the normal percentage used? This field sets the default amount that appears on the contract General Information screen. Default Terms Purchase/Sales Deals with the delivery terms on the contract. Examples may be Delivered, FOB Elevator, etc. Commodity Contract & Market Valuation Page 7 of 38

8 Unpriced Contracts This question deals with the ability to apply to unpriced contracts or not. For example, if your company has a policy that applications can only be made to contracts that the price has been established, your system should have a 2 in this field. Spot Contracts The answer to this question tells the system whether to have a separate contract for each spot ticket or not. Spot contracts are able to track multiple tickets. The entry of a different spot price or if tickets have different shipment dates will produce separate delivery/pricing schedules on the underlying Spot contract. Contract Location Tickets in one location may be applied to contracts in another location. A D will limit the system to allow only ticket applications from the same location code that was established on the contract. An A will allow for searching for contracts with the same location. If no contracts are found, a message will be displayed indicating that none were found. At that point, the user can press enter, blank out the location code, and then press enter again to display all contracts for this customer. An N will display any contract for this client. Show Contracts Beginning On or Before Shipment Date Plus Days The system looks at the beginning shipment date to display contracts available for application. A given customer may have contracts written for delivery to be made in the future as well as near by delivery contracts. Setting a number here will tell the system how far into the future to look to display contracts that could be used for potential application. Provide a Cross Reference when Defaulting from Previous Contracts? If this question is answered with a Y, the new contract created when using the choose default option in contract entry will have the defaulted contract number retained in the field labeled Their Contract #. This field is located on the contract s General Information screen. Include the Primary Name ID When Searching for Contracts? If this question is answered Y, the contract search will also return the Primary Farm Name ID during ticket entry. An N will only include the Split To Name ID of a Primary Farm Name ID. Commodity Contract & Market Valuation Page 8 of 38

9 Screens 3, 4, and 5 are where the Standard Contract Remarks, Contract Remarks, and Pricing Remarks Field Descriptions are established. Standard Contract (predefined) and Contract (free form, editable text) Remarks may be used in the Remarks section when adding new contracts. These two types of remarks pertain to the contract in general. Up to 4 separate Pricing Remarks are available in the Delivery/Pricing section when adding new contracts. These remarks may be customized for each pricing schedule. Commodity Contract & Market Valuation Page 9 of 38

10 Contract Types Note: A maximum of two hundred fifty contract types may be established. The type DP (Delayed Price) and S (Spot) are required by the application software and should not be deleted. The user can delete and/or add new Contract Types as desired with the Insert button. Commodity Contract & Market Valuation Page 10 of 38

11 General Information Contract Type/Description These 2 fields are where the user establishes the code and description of each contract type that will be used. Note: It is suggested that the code be something that would aid the user in recognizing the type of contract when displayed in other areas of the system. Priority Level Determines the order in which contracts are displayed for application. Priced contracts and then Delivery Date will determine the sort before the Priority Level. The lower the Priority Level number the higher the priority. If the user wants priced contracts to be displayed before basis contracts, a lower priority number should be assigned to priced contract type. Priority level 14 and 15 indicate the contract type will not be available for application. Hedge/Futures/Options contracts should have a priority of 14. Hedge Position Category The numeral in the Hedge Position Category field indicates where open contract balances should print on the hedge position report. Value Print Area 1 Priced & Basis Contracts 2 Futures Only Contracts 3 Price Later Contracts 4 Hedge Futures & Call Options 5 Put Options (which have an opposite position affect) Commodity Contract & Market Valuation Page 11 of 38

12 Use Unique Number Range A unique number range may be assigned to each contract type by answering Y to this question. Use the Customize Option on the Main AGRIS menu to set up the document number range. Calculate DP Charges If DP charges are to be calculated with this contract, answer this question as Y. Default Purchase Weight Base and Grade Base These fields provide the default weight and grade bases that will default for the given contract type during purchase contract entry. Default Sales Weight Base and Grade Base These fields provide the default weight and grade bases that will default for the given contract type during Sales contract entry. Futures Month on New Contracts This field controls what futures months are available for input during contract entry. The functionality checks the month entered to the nearby month on the commodity code record. The system can be configured to either warn or disallow entry of current and/or previous months. Commodity Contract & Market Valuation Page 12 of 38

13 Available Fields Purchase On this screen the user can define the fields that appear and may be required during Contract entry. This is defined independently for each contract type. The user accomplishes this by placing a 0, 1, or 2 by each field. The user may require fields to display on the Main Screen by placing a 4 or 5 by each field. This could allow for single screen contract entry. The fields named Applicator, Merchandiser, Market Region, Origin Loc, and Destination Loc are user-definable in Name/Address setup. In addition, the Defer/Cancel Date label is user-definable as indicated earlier as well as the miscellaneous pricing field names. 0 (Not Available) means the entry person will not even see this field during contract entry. 1 (Optional) means the field will appear but no entry needs to be made. 2 (Required) means that an entry has to be made into this field before continuing on with contract entry. 3 (Allow Zero Price) means the system will allow the number zero to be entered in the field. (ex. basis value of zero) 4 (Optional) means the field will show on the Main Screen but no entry needs to be made. 5 (Required) means the field will show on the Main Screen and an entry has to be made into this field before continuing on with contract entry. 6 (Allow Zero Price) means the field will show on the Main Screen and the system will allow the number zero to be entered in the field. Commodity Contract & Market Valuation Page 13 of 38

14 Note: The Scheduled Price is used to figure the amount due to or from the customer. Placing a 2 or 5 in this field will ensure that every contract is priced during contract entry. The preceding screen shot shows the contract entry screen provided by the contract type setup. Note the single screen entry with contract remarks. After the user populates this screen, they simply press the save/exit button to have the system assign the contract number and save the document. Commodity Contract & Market Valuation Page 14 of 38

15 Available Fields Sales The above screen functions in the same manner as the purchase setup screen. Details for the available fields can be found on page 13 of this document. Price Formula Purchase This screen can be used to establish formulas that the system uses to validate the scheduled price or other pricing fields for Purchase contracts. The 17 pricing fields that are available during contract entry are displayed. Appropriate letter designations are used with the plus or minus sign to determine the formula. In addition to subtraction and addition, multiplication, division, and rounding can also be used in the formula. During contract entry, if invalid figures are entered, a message will be displayed to alert the operator. Commodity Contract & Market Valuation Page 15 of 38

16 Rudimentary calculations can be used for pricing. Functions such as addition, subtraction, multiplication, division, rounding, etc. are available within the calculations. Price Formula Sales Identical functionality is available for Sales contracts as for purchase contracts. Detail for purchase contract price formulas is available on pages of this document. Commodity Contract & Market Valuation Page 16 of 38

17 Remarks Purchase This screen is used to define the Standard Contract Remark fields that appear during Contract entry. This may be defined for each contract type. The user accomplishes this by placing a 0, 1, or 2 by each field. 0 (Not Available) indicates the entry person will not see this field during contract entry. 1 (Optional) indicates the field will appear but no entry needs to be made. 2 (Required) indicates that an entry must be made into this field before continuing on with contract entry. The user may require Standard Contract Remark fields to display on the Main Screen by placing a 4 or 5 by each field. For Standard Contract Remarks, a range of possible remarks should be established for each remark. By indicating a range, when the user searches, only the remarks in this range will appear. The text populating the remark fields cannot be edited by the user during contract entry. Commodity Contract & Market Valuation Page 17 of 38

18 Contract Remarks work similarly to Standard Contract Remarks. The same fields for Optional, Required, or Not Available exist as well as a range of available pre-defined choices. The user may require Contract Remark fields to display on the Main Screen by placing a 4 or 5 by each field. The difference between Contract Remarks and Standard Contract Remarks is that text populated to the contract via Contract Remarks is available for editing during contract entry. Price Schedules remarks can also be set to be unavailable, optional, or required and can be set to a pre-defined lookup range. The text populated by the predetermined range will be available for editing during contract entry. Commodity Contract & Market Valuation Page 18 of 38

19 Remarks Sales All three contract types - Standard Contract Remarks, Contract Remarks, and Pricing Remarks - are also available for sales contracts just as there are for purchase contracts. Note that different remarks may be required and different ranges of available remarks may be offered. For additional information on the use of these fields, review the information included in the Remarks Purchase section of this document beginning on page 17. Market Evaluation Purchase A formula is developed to calculate Net Profit when bringing contracts to Market. Contracts are divided into 3 categories of Prior Priced, Current Priced, and Unpriced. For each category, an option number is selected for Gross Profit. The option selected can vary by contract type. A plus or minus is placed in the appropriate fields needed to calculate Net Profit for each pricing category. Commodity Contract & Market Valuation Page 19 of 38

20 Current Priced is based on the date entered into the Beginning Date For Current Priced field above. Market Evaluation Sales The functionality for Market Evaluation calculation for Sales contracts is identical to that of purchase contracts. Detail on this setup can be found on page 19 of this document. Contracts When choosing Contracts from the Commodity main menu, the user is presented with the following processing options: Contract Maintenance where the user can add, edit, or delete a contract. Cancel Contracts where the user cancels all or a portion of the contract. Commodity Contract & Market Valuation Page 20 of 38

21 Price contract where the user can price an unpriced contract. It may also be used to update an existing price on a contract. Price Delivery Sheets where the user can price an individual application of a Delivery Sheet. Price Tickets where the user can price an individual ticket where a Delivery Sheet has not yet been produced. Price Orders where the user can price Orders created in the Inventory Package and assigned to contracts in the Commodity Accounting Package. Print Contract Forms where the user can print a contract form if it was not printed during contract entry. Contract Reports where the user can print reports that deal with contract information. Contract Basis Roll where the user can roll unpriced basis contracts from one month to another. Contract Specific Discounts Contract Discounts Activating Contract Specific Tables To setup a discount table for a specific contract, on the General Information screen, during contract entry, type in an exclamation point (!) in the appropriate Discount Tables input field and click on the Discounts button. An additional screen will be displayed. Commodity Contract & Market Valuation Page 21 of 38

22 Set Up Specific Contract Table The description of the selected discount code is shown in the upper left corner of the box. A table description may be entered to describe the table to be established. The Calculation Type input field determines the method of calculation. Acceptable values are displayed, and their meanings are shown below this input field. Type the starting grade factor percent to have a discount/premium applied in the Lowest Grade input field. Type the initial amount of discount/premium in the Discount Amount input field. The Discount Increment and Grade Increment are the amounts to increase the rate and grade through the grade specified in the Ending Grade input field. A discount table to use for this contract may be specified if the discount/premium grades are below or above the grades specified on the discount table. You can retrieve a specific discount/premium table from another contract by typing in the appropriate location code and contract number. Examples of Contract Discounts The following 2 screens give the example of a Contract Specific Moisture Discount on Corn that has the following increments: Up to 14.0 is no discount, 1 cent for each 1% to 15.10, 2 cents for each.5% to 17.1, and 3 cents for each.5% to Beyond that grade, the standard table 1 will be used. Commodity Contract & Market Valuation Page 22 of 38

23 Note also that if you had previously established a contract specific discount table on another contract and wish to re-use it on this contract, you can choose to default it from the previous contract. Commodity Contract & Market Valuation Page 23 of 38

24 Delivery/Pricing Schedules Delivery and pricing schedules are used to create varying pricing situations for a given contract. Several variables can be used to distinguish pricing/delivery schedules. Among these are: Delivery Periods the beginning and ending dates for delivery An example of varying deliver period would be the creation of clock contracts. The price schedule of the clock contract may be created by splitting or duplicating schedules while adjusting the Delivery Period and provides the customer the flexibility to determine delivery or pickup of the grain. Inventory Location the specific location from/to which the grain is to be shipped You may choose to allow a customer to deliver grain to any one of their receiving locations. Note that the basis may be different for each location because of transportation considerations. A separate pricing/delivery schedule can be used to provide for delivery at any of the locations and associate the correct price for each. The Application Name ID the name ID on the Inbound ticket or Outbound ticket As an example if a tenant establishes a single contract for themselves as well as their landlord(s), this field can be used to create a separate pricing/delivery schedule for each landlord. Or any of the transaction fields such as Territory, Market Region, Origin Location, and Destination Location. Commodity Contract & Market Valuation Page 24 of 38

25 Pricing Un-Priced Contracts To price a contract, simply choose the menu option Price Contracts. Note that this functionality can be used to price either an unpriced contract or re-price a contract that has previously been priced. Select the Contract to Price Select the Pricing/Delivery schedule to price Indicate the quantity to Price. The remaining balance will default into the field. If you choose a different quantity to price than the remaining balance, a new pricing/delivery schedule will be automatically created. Commodity Contract & Market Valuation Page 25 of 38

26 Optionally you can adjust any of the pricing/delivery schedule fields during the pricing activity. In addition, you can optionally change the type contract type on the individual price schedule. Changing this field on a schedule that is un-priced may cause the schedule to affect the Hedge Position Report in a manner different than it did previously. Commodity Contract & Market Valuation Page 26 of 38

27 Adjust the price and save the updated contract. Contract Cancellation The Contract Cancellation process allows you to cancel both purchase and sales contracts in one session, maintaining a running total of the number of contracts cancelled, quantity cancelled, and the net value of the amount cancelled. Note: To prompt both purchase and sale contracts, the field Purchase/Sale must be blank. Commodity Contract & Market Valuation Page 27 of 38

28 A positive response to the question Adjust Detail? will allow the user to change the units to be cancelled, the scheduled price, etc. on the contract. A negative response will cancel the remaining units at contract price. Multiple other fields are displayed that may be used to narrow the search used to display the contracts to be cancelled. When cancelling Hedge contracts, adjusting the Future Date can be very useful when used in conjunction with the contract type field. A running total of the number of Delivery Sheets, the Cancelled Units, Cancelled Amount, and the Net Value of the amount cancelled is displayed. Once the contracts have been cancelled, a single settlement can be produced of all the cancelled schedules with the option of going directly to the settlement process. Note: In order to produce a settlement, each time that a contract is selected for cancellation, make certain that you have answered Yes to the prompt Produce a Delivery Sheet. Commodity Contract & Market Valuation Page 28 of 38

29 Contract Form Assignment Forms each contract type established in the system; a separate form can be assigned to the following activities: þ þ þ þ Add When a new contract is initiated in the system Edit When the edit contract function is selected to change something with regard to the contract (such as remarks) Cancel When the contract or a portion of the contract is cancelled Price When the contract or a portion of the contract is priced Note also that the form assignment can be done by both purchase and sales as well as by contract type. In addition, the form can be set to either simply be the default or be automatic as the only contract form available for printing. Commodity Contract & Market Valuation Page 29 of 38

30 Market Valuation Market Situation Setup Multiple fields can be set to determine distinct market situations. If the fields are marked with a Y, the contracts with different values in those fields will be in different market situations. If instead they are marked with an N, then even if two contracts have different values in the indicated field, they will still be in the same market situation. Commodity Contract & Market Valuation Page 30 of 38

31 Market Situation Report At the point that you are ready to bring contracts to market (contract valuation), you should run the market situation report. This report can be used for several purposes: þ þ To evaluate the current average basis level by market situation To create empty market prices for which basis levels should be added Market Situations will be created based on the Y/N flags you selected on the Contract Information screen 1 of 5. Depending upon what the purpose of the report might be, the parameters can be adjusted accordingly. Commodity Contract & Market Valuation Page 31 of 38

32 Market Prices Once the Market Situation report has been completed, the user can add/edit the market prices. þ þ þ þ Option 1 provides for adding or editing of futures prices within the system. Option 2 provides for adding or editing of basis levels within the system Option 4 allows the user to delete in mass the existing prices. These remain from the last time the function was performed. Option 5 provides a report of the prices loaded in the system at the current time Note: Futures Prices and Market Basis values can either be added manually or can be added to the system automatically using the Market Situation report. View/Edit Futures Prices For each commodity and each combination of Board Name and Futures Month, a Futures Price should be included in the system. If it is not, the To Arrive report will not be accurate. Select the Board/Month to enter the Price. Select Next to proceed down the grid or Previous to proceed up the grid. Commodity Contract & Market Valuation Page 32 of 38

33 Market Basis Prices Filter the Market Situations to only those you wish to display. Filter fields are based on the Y/N flags you selected on the Contract Information screen 1 of 5. If the user ran the Market Situation report and left the parameters as the default of Y then all the required market situations will be available for selection on the Market Prices screen. Each situation can be selected and the correct basis entered. Press Next to move to the next situation. Note: The Contract column displays how many contracts make up the situation and the Override column that displays the number of individual basis entries separate from the main situation basis. Commodity Contract & Market Valuation Page 33 of 38

34 The Contracts button will display the contracts that make up that Market Situation. A recap of the Market Situation is displayed at the top of this screen just below the commodity. The Futures Price and Market Basis of the situation are displayed below the list of contracts. Note that the Unit Profit and Total Profit of each contract displays on screen. This information also prints in the Market To Arrive Report. Update the Market Basis of an individual contract by selecting the contract and enter the basis. Add a remark (5th contract pricing remark) as an explanation of the override. Commodity Contract & Market Valuation Page 34 of 38

35 Select the contract details buttons to view information about the contract. Commodity Contract & Market Valuation Page 35 of 38

36 The Situation will display the override on both the Situation and Contract grids. To Arrive Report Once all of the Futures Prices and Market Basis prices have been updated, the To Arrive report will provide contract profit/loss information. Commodity Contract & Market Valuation Page 36 of 38

37 The report uses the values loaded in Market Prices to provide the profit and loss information. The gain/loss information can be used to create a manual journal entry to update the general ledger for the fiscal reporting period. A sample of the report s output is above. Commodity Contract & Market Valuation Page 37 of 38

38 Notes Commodity Contract & Market Valuation Page 38 of 38