The information contained in this presentation is taken from sources which we believe to be reliable, but is not guaranteed by us as to accuracy or completeness and is presented to you for information purposes only.

There is a risk of loss when trading commodity futures and options. Country Hedging, Inc. bases its recommendations solely on the judgment of Country Hedging, Inc. personnel.

Price RiskDeveloping a

Marketing Planand Marketing Tools Basics

Country Hedging, Inc., Cenex Harvest States5500 Cenex Drive

Inver Grove Heights, MN 55077-1733

1-800-243-3432 or www.countryhedging.com

Instruction Guide

Table of Contents

Marketing Decisions…………………………..1

How Much and When to Sell…………………2

Selling Seasons………………………………..3

1996 Farm Bill…………………………….……4

Developing a Marketing Plan………………...5

Marketing……………………………………….6

Crop Price Seasonals………………………...16

Marketing Tool Basics………………………..18

Price Discovery………………………………..19

Hedging………………………………………...20

Futures…………………………………………21

Margin………………………………………….23

Hedging Review………………………………24

Basis…………………………………………...25

Picking the Proper Tool……………………...28

Options………………………………………...29

Country Hedging Producer Brokers

St. Paul, MN: 1-800-243-3432 Keith Banta, Tim Bolan, Brian Peiler,Tom Potter, Kyle Sieren, Doug Skarp

Aberdeen, SD: 1-800-388-8788 Marcia Eidahl, Brad Erickson

Fairmont, MN: 1-800-992-5528 Pat Murphy, Mark Weineke

Northfield, MN: 1-800-433-4385 Jim Wendland

Kansas City, MO: 1-800-961-1133 Jeff Peterson, Eric Sperber

Sell Cash/Buy Call

Sell Cash/Buy Futures

Cash Sale

Need Money

Like Price

Sell Cash (in bin)

Delayed Price

Basis Fixed

Waiting for

Better Price

Store Grain

Sell Futures

Buy Put Option

Hedge to Arrive

Scale Up Strategy

Like Price

Sell Production

Marketing Decisions

3 Major Decisions

Old Crop - Sell Cash

Store cash

New Crop - Sell

Production

Why Sell? Why Store? Why sellProduction?

Marketing Tools to Use

Harvest

1999 Crop How much to sell?

When to sell?

Pre-Harvest Storage

Does anyone have ‘97 crop?

All at some point

Spread risk - sellbefore harvestCorn or wheat

Market Plan

Selling Seasons: Pre-Plant

Growing

Harvest

Storage

New Old

Pre-Plant Storage

Growing

Harvest

New Crop Plan Old Crop Plan

Football Analogy-Coach has a game plan. When does the coach want to score?How many coaches wait until the 4th quarter to implement theirgame plan?How many coaches wait until the game is over to score?

carry crop for more than one year

1996 FARM BILL

Risk Management is Imperative

The 1996 farm bill eliminated deficiency payments which, since 1973, provided producers ofprogram crops price supports during years of low prices. Producers will now receive“CONTRACT PAYMENTS” that are fixed.

The 1996 farm bill provides FIXED payments in two installments.

50% advance payment made on the 15th of December or January, at the option

of the producer.

Final payment made no later than September 30th of each fiscal year 1997 -

2002.

Contract Payment estimates (Payments are adjusted up or down depending onparticipation):

YEAR CORN WHEAT MILO 1997 46 cents 61 cents 50 cents1998 36 cents 65 cents 42 cents1999 36 cents 63 cents 43 cents2000 32 cents 57 cents 37 cents2001 26 cents 46 cents 30 cents2002 25 cents 45 cents 29 cents

Payments are made on 85% of your base acres with your payment yield level remainingconstant.

Set aside authority has been eliminated - full flexibility in planting.

Farm payments are fixed and decline at the end of 7 years.

The Target price levels from the 1990 farm bill no longer applies. Those levels were:

Corn $2.75Milo $2.61Wheat $4.00

Two Major types of risk associated with growing crops:

Price Risk Production Risk

Managing Price (Marketing) RiskKnow the level of risk you are comfortable with.Be willing to increase the number of skills in your marketing toolbox.Develop a Marketing Plan.

Managing Production RiskEnterprise Diversification.Crop Insurance.Contract Production

Are you comfortable with loan rate?

DEVELOPING A MARKETING PLAN

A marketing plan should be an integral part of your farming operation’s total business plan. Thetwo major components of a marketing plan, and the amount of emphasis each component shouldreceive when developing your marketing plan are…

Outlook 10% Strategy 90%

Let’s take a look at what determines price outlook.

Weather- Before planting (when/if crop gets planted)- Growing (Hot, dry, too wet, freeze)

Acres- How many will be planted? (price/weather)

Demand- A major factor after the crop is harvested.

Weather is the most volatile component of outlook. Weather can easily drive prices sharply higher orlower. This component is highly UNPREDICTABLE.

Acres planted to a crop can be affected by price, rotation practices and weather. USDA will release it’sfirst forecast of planting intentions in January for Winter Wheat and on March 31

st for Spring Wheat, Corn

and Soybeans. On June 30th, USDA will release the planted acreage report. Grain futures prices canmove sharply higher or lower depending on the outcome of these acreage reports.

Demand can have a major influence on grain future prices when the crop is harvested and in the bin.

How accurately can anyone predict the WEATHER or the number of ACRES that may be planted to acrop or what the DEMAND will be for that crop? Let’s face it, it is very DIFFICULT to predict weather,planted acres or demand.

Based on the facts just presented, outlook is extremely variable. And because of that, 90% of yourmarket planning should concentrate on STRATEGY.

Let’s look at developing a marketing plan based on the assumption that we will have a normal growingseason; but let’s also have a backup plan just in case a short crop develops.

Is it easy to sell in a weathermarket? When does a weather market give me pricing opportunities?

Key to moving pricearoundreportdates

Ask the group - Of the 3 major components that move price (weather, acres, demand) which moves price the most?All the answers are right. The question that needs to be answered is:When do I implement my plan when the 3 events listed above - give me an opportunity to price my grain and implement my Plan.

MARKET PLAN DEVELOPMENT

What do you need to know to put a plan together?

Grain available to market Available On-farm Storage When you need money Tax ramifications (if any) Realistic price objective Break-even price Stay in business price (covers all out-of-pocket cash expenses)

The next step is to MAP OUT A PLAN.

Your plan will be unique; it’s your personal strategy.

Define your selling season - Break down season by season (component).

Percent of Crop to Market Marketing Tools

Pre-plant ____________ ______________________________

Growing ____________ ______________________________

Harvest ____________ _______________

Storage ____________ ______________________________

Goals of your Marketing Plan

ProfitabilityControl Risk

Mapping out your plan: Set price and time objectives for each component of your defined selling season. Have a default date and quantity if your Price Target was not achieved.

Most Important

50%

20%

30%

50%

Forward ContractMin. Price

Forward ContractMin. Price

(Price Ins.)

(Price Ins.)

NEW CROP - MARKET PLAN DEVELOPMENT

CROP:_______________

I am willing to either Forward Contract or HEDGE ___________%I am willing to use a Minimum Price Contract on ___________% of my realisticprojected production before HARVEST.

Pre-Plant:

Hedge or FC _______% of my realistic projected production By___________

Min Price _______% of my realistic projected production By___________

_______% TOTAL

Growing:

Hedge or FC _______% of my realistic projected production By___________

Min Price _______% of my realistic projected production By___________

_______% TOTAL

CROP:_______________

I am willing to either Forward Contract or HEDGE ___________%I am willing to use a Minimum Price Contract on ___________% of my realisticprojected production before HARVEST.

Pre-Plant:Hedge or FC _______% of my realistic projected production By___________

Min Price _______% of my realistic projected production By___________

_______% TOTALGrowing:Hedge or FC _______% of my realistic projected production By___________

Min Price _______% of my realistic projected production By___________

_______% TOTAL

CORN

30%20%

10% 3-31

10% 3-31

20%

20%

10%

30%

6-30

6-30

PRICE OUTLOOK DATE:_____________

Crops Grown ____________ ____________ ____________ ____________

Cash Price ____________ ____________ ____________ ____________

New Crop Price ____________ ____________ ____________ ____________

Cost of Production ____________ ____________ ____________ ____________

CONTRACT HIGHS for CROPS GROWN

Old Crop - Grain ____________ ____________ ____________ ____________

New Crop - Grain ____________ ____________ ____________ ____________

PRICE PROJECTIONS for NEW CROP: Short Crop vs Normal to Large Crop

Short Crop - Price ____________ ____________ ____________ ____________

Normal to Large Crop ____________ ____________ ____________ ____________

Your Price Outlook for crops that are raised on your farm

Old Crop ____________ ____________ ____________ ___________

New Crop ____________ ____________ ____________ ____________

(Today’s Date)

Corn Soybeans Wheat

-- Local cash bid --

--Local bid for new crop delivery --

Est. cost of production (use range) with low prices

Use cash flow #

What was the highest cash price you could have received forold crop grain - may occur in previous year

What was the highest cash price for new crop grain

What if we have a short crop?How high can prices go?

Normal to large crop - price expectations

What is your next sales objective?Selling zone

Break up in groups - record and use for plan

NEW CROP SELLING SEASON - CROP YEAR_____CROP______________

% of Crop to Sell Before Harvest __________________ Futures or Forward Contract

% of Crop that I will cover with option strategies __________________ Buy Puts__________________ Sell Cash - Buy Calls

TODAY’S FUTURESContract High __________ Month Price Contract Low __________ _______ _______Difference __________ _______ _______1/3 Retracement __________ _______ _______1/2 Retracement __________2/3 Retracement __________

MONTH

MAX % TOCONTRACTMIN % TOCONTRACTPERCENT OFGRAIN TOCONTRACT AT:

PERCENT TOPROTECT WITHLONG PUTS

STRIKEPREMIUM

PERCENT TOPROTECT WITHLONG CALLS

STRIKEPREMIUM

99Corn

30

20

Dec. Corn 2.91 1/22.38 53 1/2

2.56

2.64 3/42.73 3/4

53 1/2 x .33 + 238

53 1/2 x .50 + 238

53 1/2 x .66 + 238

DecMarJuly

Pre-Plant Growing

20 30

10 15

10% 2.60 Z futures10%10%

2.702.75

Z futures

10% 2.60 Z Put- .15 Premium2.45 Min. Futures

10% 2.70 Z Futures-. 15 Premium2.55 Min. Futures

OLD CROP SELLING SEASON - CROP YEAR_____CROP______________

Bushels of ______ stored on Farm _________ Bushels in Elev___________Total bushels to sell _________ Time Frame DollarsCash flow needed __________ _________ Bushels to Sell____________Cash flow needed __________ _________ Bushels to Sell____________Cash flow needed __________ _________ Bushels to Sell____________Bushels of _____ to sell & deliver by ________ Bushels to Sell____________

Month Strike Premium Re-ownership Strategies Buy Calls ___________________________________

Buy C Sell C ___________________________________

TODAY’S FUTURESContract High __________ Month Price Contract Low __________ _______ _______Difference __________ _______ _______1/3 Retracement __________ _______ _______1/2 Retracement __________2/3 Retracement __________

MONTH

TODAY’S CASHPRICE

BUSHELS TOSELL

CASH PRICEOFFEROPTIONSTRATEGIES

STRIKE

PREMIUM

98Corn

March Corn 3.052.09 1/2

95 1/22.42

2.57 1/42.73 1/2

MarchMayJuly95 1/2 x .33 +209 1/2

95 1/2 x .50 +209 1/2

95 1/2 x .66 +209 1/2

Champ© Quarterly Marketing Plan Input Sheet

1998 Inventory - Old Crop Marketing Plan

Name _________________ Phone _____________ Date ________

Crop ___________ELEVATOR ON - FARM

Total Bu. ___________ ___________ ___________(bu. to sell)

DP Grain ___________ ___________ ___________

Under Loan ___________ ___________ ___________

LDP Bu. ___________ ___________ ___________

LDP Open ___________ ___________ ___________(bushels)

CASH FLOW NEEDSDEL.

DATE DOLLARS BUSHELS PRICE OBJ. DATE

___________ ________ ___________ _________ ________

___________ ________ ___________ _________ ________

___________ ________ ___________ _________ ________

BEST PRICE - SALES OBJECTIVES

DEL. DATETotal BU ___________ ___________

Price - BU ___________ ___________

Price - BU ___________ ___________

Price - BU ___________ ___________

Country Hedging’s Ag Marketing for Producers

Joe Farmer 1-1-99

Corn

50,000 20,000 30,000

20,000 20,000

30,000 30,000

20,000 20,000 (.25)

2-28 10,000

Champ© Quarterly Marketing Plan Input Sheet

1999 Projections -- New Crop Marketing Plan

NAME ________________ PHONE _______________ DATE _______________

Crop ______________ Break Even __________

Planted Acres ______________

Program Base Acres ______________

Normal Yield ______________

Farm Program Yield ______________

APH for Crop Insurance ______________

Multi-Peril/CRC ______________

Percent to Hedge ______________

Percent to Protect W/Calls ______________

Percent to Min Price W/Puts ______________

County Loan Rate ______________

Normal Harvest Basis ______________

Percent To Hedge

Increments(%)/ Bu. Price Default Date Call Opt.

________________ ____________ ____________ ____________

________________ ____________ ____________ ____________

________________ ____________ ____________ ____________

________________ ____________ ____________ ____________

Percent to Min Price W/Puts

Increments Strike Prem. Default Date

________________ ____________ ____________ ____________

________________ ____________ ____________ ____________

________________ ____________ ____________ ____________

________________ ____________ ____________ ____________

* Boxed portion to be filled out by Branch Manager or Consultant

Country Hedging’s Ag Marketing for Producers

Corn 1-1-99

Corn

940110014013013065%40%40%30%

1.84-30

2.10

Dec. corn Z calls

10% 2.60 3-31 3.00 - 6 cents

10%

10%

10%

2.70

2.75

2.80

3-31

7-4

7-4

3.00 - 6 cents

3.00 - 6 cents

3.00 - 6 cents

10%

10%

10%

2.602.70

2.80

.15

.15

.10

3-31

7-4

7-4

MARKET PLAN SUMMARY

KEEP IT SIMPLE

FARM BILL

Price Supports Then NowCorn $2.75 $1.89Wheat $4.00 $2.58Soybeans $5.02 $5.26

Contract Payments Declining and will phase out in 2002

Production/Supply Controls FOR and Set Asides no longer exist

DEVELOPING A MARKETING PLAN

10% Outlook Weather, Acres, Demand – UnpredictableSet Selling Zones for pricing your grain

90% Strategy Compensate or Defend against the unknown

SELLING SEASONS

Percent of Crop to Sell In each season – reduce/spread out risk

Default Dates If price targets are not met

Choice of Marketing Tool For each selling season

Farmer Owned Reserve

I AM WILLING TO USE THE FOLLOWING MARKETING TOOLS

_____ CASH SALES of crops in hand when price objectives are met or cash flow needsare met.

____ FORWARD CASH CONTRACTS when price objectives are met.

_____ HEDGE-TO-ARRIVE CONTRACTS when price objectives are met.

_____ SELL FUTURES CONTRACTS when price objectives are met.

_____ BUY PUT OPTIONS when price objectives are met, but production risk does not permit price commitment.

_____ BUY FUTURES CONTRACTS when cash sales are made, but price objectives are not met and prices are expected to move higher.

_____ BUY CALL OPTIONS when cash sales are made or cash flow needs occur, but price objective is not met and prices are expected to move higher.

_____ MINIMUM PRICE CONTRACTS when cash flow needs occur, but price objective is not met and prices are expected to move higher.

_____ SELL CALL OPTIONS on deferred futures contracts as a hedgeagainst falling prices.

_____ SELL PUT OPTIONS as a RE-OWNERSHIP strategy when prices are expected to trade in a sideways pattern for the life of the option.

I WILL USE THE MARKETING TOOLS I HAVE INDICATEDTO MAKE SALES TO MEET MY PRICE OBJECTIVESAND CASH FLOW NEEDS. I WILL LOOK FOROPPORTUNITIES.

I WILL MAKE SALES AS FOLLOWS:

DATE COMMODITY BUSHELS TOOL PRICE

November Soybean Seasonal

0%

25%

50%

75%

100%

3-D

ec

3-J

an

4-F

eb

4-M

ar

1-A

pr

30

-Ap

r

29

-May

26

-Jun

25

-Jul

22

-Aug

22

-Se

p

20

-Oct

18

-No

v

December Corn Seasonal

0%

25%

50%

75%

100%

5-J

an

2-F

eb

3-M

ar

31

-Mar

2-M

ay

31

-May

28

-Jun

27

-Jul

24

-Aug

22

-Se

p

20

-Oct

17

-No

v

16

-De

c

September Spring Wheat Seasonal

0%

25%

50%

75%

100%3

-Jan

31

-Jan

1-M

ar

1-A

pr

29

-Ap

r

28

-May

25

-Jun

24

-Jul

21

-Aug

19

-Se

p

July HRW Wheat Seasonal

0%

25%

50%

75%

100%

1-A

ug

29

-Aug

29

-Se

p

27

-Oct

25

-No

v

24

-De

c

26

-Jan

24

-Fe

b

24

-Mar

22

-Ap

r

20

-May

18

-Jun

17

-Jul

Marketing Tools

Basics

Pr ice Discovery

How are prices determined?

Opinions of hedgers and speculators looking at:

Supply

Demand

Political events

Psychology

Hedging

Definition:

Taking a position in futures that offsets the price risk associated with a physical position.

Why Hedge?

Protect margins

Determine a purchase price in advance of physical deliv-ery

Determine a selling price in advance of physical delivery

Expands pricing horizon

Futures Contract

Definition:

An Obligation to buy or sell a commodity that meets set standards on a specified future date.

Futures contracts are de-signed to reflect a product that is commonly traded in the physical market.

TransactionTypes

Terminology Price Advantage

Delivery vs.Offset

Sell

Buy

Short

Long

Lower prices

Higher prices

Buy back ormake delivery

Sell back ortake delivery

Hedging (Risk Shi f t ing)

Hedging:

Taking a position in futures which offsets your current physical position.

Futures accounts are marked to market every trading day and balanced via the margining process.

Owns GrainAt risk when prices de-cline

Seller of ContractsPosition gains in value when prices decline

Needs GrainAt risk when prices in-crease

Buyer of ContractsPosition gains in value when prices increase

Margin Example

Crop =

Contract size =

Minimum Tick =

Limit Move =

Initial Margin =

Maintenance Margin =

Day Buy/SellFutures Price

Dollar Change

Account Balance

Initial Trade

Note: Explains concept of margin and how money in previous example goes into or out of account.

Wheat

5,000 bushel

$12.50 (5000 x .0025)1/4 cent perbu.

20 cents/bu. $1000 (5000 x .20)

$1000

$800

$4.00 $1000

1

2

3

4

-0-

$4.03

$4.05

$4.00

$3.90

-.03 x 5000 = -$150

-.02 x 5000 = -$100

+.05 x 5000 = +$250

+.10 x 5000 = +$500

$850

$750+$250 =$1000

Margin Call

$1250

$1750

5 $3.70+.20 x 5000 +$1000 $2750

Steps to Hedging Review

Know Costs

Contract Specifications

Basis

Margin Requirements

Hedging CostsCommissionInterest

KnowledgeableBrokerLender

Market Plan

Two Components of Cash Bid

Nearby

Futures

Price

Local

Basis

Local Cash Price

Calculate Basis

Local Cash

Minus Nearby Futures

= Basis

Basis Components

Transportation

Handling Charges

Storage

Interest

Know Your Local Basis Pattern

Local Cash

Minus Nearby Futures

= Basis

The strongest basis last year

The weakest basis last year

Months with the strongest basis

Months with the weakest basis

Picking the Pr oper Mar keting Tool

ExpectedChange

Basis Basis WeakenStrengthen

Futures Prices

Up

Down

Expect Stronger Basis Higher Futures

Expect Stronger BasisLower Futures

Expect Weaker BasisHigher Futures

Expect Weaker BasisLower Futures

Store Grain

Delayed Price Contract

Sell FuturesBuy a Put Option

Sell Futures/Buy a Call

Basis Fixed Contract

Sell Cash/Buy Call

Sell Cash/Buy Futures

Sell CashForward ContractFutures Prices

Types of Opt ions

Put Opt ion

the right to sell

a futures contract

at a fixed price

before an expiration date

Call Option

the right to buy

a futures contract

at a fixed price

before an expiration date

Str ike Pr ice and Premium

Strike (Exercise) Price:

The fixed price at which the option holder has the right to buy (call option) or sell (put option) a futures contract.

The MGE, KCBT and CBOT wheat and corn strike prices are listed every ten cents per bushel. CBOT beans are listed every twenty-five cents.

Premium:

The cost of an option quoted in cents per bushel varies from minute to minute as the un-

derlying futures price changes

Put Premium

Example:

Buy a ______ put when futures are at $_______.

Increases in value as market falls Decreases in value to zero as market

rises

FuturesPrice

StrikePrice

OptionPremium

$4.00

4.00

$4.40

$4.20

$4.00

$3.80

$3.60

$4.00

(at expiration)

0

0

0

$.20

$.40

No value whenyou have the rightto sell lower thanfutures.

Right to sell futuresabove the currentprice-valuehere

Cal l Premium

Example:

Buy a ______ call when futures are at $_______.

Increases in value as market rises Decreases in value to zero as market

falls

FuturesPrice

StrikePrice

OptionPremium

$4.00

4.00

$4.40

$4.20

$4.00

$3.80

$3.60

$4.00call

$.40

$.20

Right to buylower than futureshas value

0

0

0

Right to buy higherthan futures has novalue at expiration

Put Opt ion Premium

Option premium is composed of two parts:

Intrinsic Value

Time Value

If futures = ______and Put Strike Prices = _____ _____ _____

Intrinsic Value = _____ _____ _____ minimum value

+Time Value= _____ _____ _____ volatility of futures time to expiration interest rates

Total Premium= _____ _____ _____

$4.00

$3.80 $4.00 $4.20

0 0 $.20

$.10 $.20 $.15

$.10 $.20 $.35

Cal l Opt ion Premium

Option premium is composed of two parts:

Intrinsic Value

Time Value

If futures = ______and Call Strike Prices= _____ _____ _____

Intrinsic Value = _____ _____ _____ minimum value

+Time Value= _____ _____ _____ volatility of futures time to expiration interest rates

Total Premium= _____ _____ _____

$4.00

$3.80 $4.00 $4.20

$.20 0 0

$.15 $.20 $.10

$.35 $.20 $.10

Options Relat ionship to Futures

Futures price= ________

Puts Calls

In the money _____ _____

At the money _____ _____

Out of the money _____ _____

$4.00

$4.20 $3.80

$4.00 $4.00

$3.80 $4.20

(Strike prices with intrinsic value are “in-the-money”)

Put Opt ion - Buyers and Sel lers

Put Option Buyer Put Option Seller

Pays premium

Has right to exer-cise into a short fu-tures position

Pays no margin

Collects Premium

Obliged to accept long futures posi-tion if assigned

Insures put buyer by margining

Describes rights held by option buyers and obligations of option sellers.

Cal l Opt ion - Buyers and Sel lers

Call Option Buyer Call Option Seller

Pays premium

Has right to exer-cise into a long fu-tures position

Pays no margin

Collects Premium

Obliged to accept short futures posi-tion if assigned

Insures put buyer by margining

Calculat ing a Floor Pr ice

Buy a(n) _______ _______ _______ put month crop strike

Strike Price = ________

-Premium = ________

+ Basis = ________

Estimated Floor Price = ________

Estimated Floor Price:Minimum selling price as market declines; put op-tion gains value.

Unlimited Upside Potential:If market prices increase, net selling price = higher cash price minus premium paid.

Pay Premium:Premium paid in full up front — no margin obliga-tions.

SEP HRSW $4.00

$4.00

-0.20

0(best to use localbasis estimate)

$3.80

Sel l Grain — Buy a Cal l

Sell grain for $_______ per bushel

Buy a(n) _______ _______ _______ call month crop strike

Cash Price = ________

-Premium = ________

Estimated Floor Price = ________

Estimated Selling Price:Minimum selling price as market price increases; call option gains value.

Unlimited Upside Potential:If market price decreases, net selling price = cash price minus premium paid.

Pay Premium:Premium paid in full up front — no margin obliga-tions.

3.00

MAR HRSW 3.00

$3.00

0.20

$2.80

Notes____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Notes____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________