Rosy Outlook

[crusher]

Check out the carry in Chicago wheat.

http://www.rbcds.com/quotes-popup.html?page=quote&sym=ZWZ09&mode=i (hope it works)

I'm sitting on my wheat for a while.

First Agrium prebuy program expires this week, many guys buying?

[charliep]

Carry is big.

Concern about delay in getting US soft red winter wheat seeded. Currently 30 % seeded versus 65 to 75 % normally.

[chaffmeister]

A word or two of caution.

There's a saying: "markets seldom earn their carry". This means that even though you see higher prices right now in deferred months (carrying charge market), when you get to that month, that higher price is seldom there - the carrying charge simply erodes away.

We've all heard people say that prices in deferred futures are forecasts of future prices. Deferred futures prices are actually indicative of what someone is willing to pay RIGHT NOW for delivery later on - NOT a forecast of what they'll pay later.

A carry market is an indication of ample stocks relative to demand. It says that demand is being satisfied and there is excess in the pipeline that needs to be stored. It gives hedgers an incentive to store grain by covering the cost (of carrying).

Farmers can use these markets to their advantage. If you hedge (through selling futures), there's a couple of things you can do:

1. If you sold futures in the spring/summer ahead of harvest - let's say you sold Dec futures as a harvest hedge. Now that harvest is over (well, for some), you might be looking at buying in your hedge and selling your grain. But the large carry in the market is telling you to store it. So you can buy in your hedge (Dec) and sell the Mar or May. Your hedge just improved by the spread.

2. If you haven't hedged yet but are looking at pricing opportunities - you can look at spreads to see if the premium in the deferred months are enough to get you to store your grain and price it (sell it) in the deferreds.

By doing either of these you're getting paid to store your grain.

But if you do nothing but hold your grain waiting for better prices, you won't gain by the carry in the market. You might get lucky and get a rally - but that's not the same thing.