So you harvested more canola than expected?

[ianben]

Hi
From what I read I understand your canola yeilds were better than expected.

How will you market these extra tonnes?

Could we learn from the airlines?

I have watched with envy as they reduce capacity to meet demand. They will not suffer years of low prices when they all know their market is over supplied.

I realize this is not a real option for us but perhaps the way the low cost airlines operate might offer a solution

I believe they sell the first 50% of seats cheap and cover their costs. Then tthe price then goes up and if they sell the last seat it cost twice the price of the first.

Could we price this extra canola like this?

We have a site www. grainman.co.uk where I could post my canola like this.
Spot price today is £144.
I could list my 100 tonnes like this
50 tonnes £145 25tonnes £155 25tonnes£165

Not much point though if you guys are all going to sell "stand-by" and drive prices down.

Regards Ian

[TOM4CWB]

Ianben,

Could you not have hedged the whole 100t @ 165 a couple of months ago?

I also believe many discount airlines sell everything at 152.50, and provide the service their customers need right till the last minute, still making the same return overall.

The bottom line is knowing the cost of our product, to then know what a profitable price is to sell it at!!!

I know what you are getting at, however when I have higher than expected yeilds, then I can actually afford to sell at a lower price, because my incremental cost for those extra bushels is the lowest!

Too many things to think about, hope you can make a profit this year ianben, then we can take another chance on the wheel of fortune next year!!??

[charliep]

Ianben

Actually at 4.8 MMT, the Canadian canola crop was about as expected. I have heard these comments for individual farms - the new varieties seem to handle drought better than old ones even though the crop may not look all that well.

A couple of comments on canola.

1) Canola prices have ranged anywhere from $6 to $8/bu over the past 9 months. The top end of this range occurred during the summer. What is a good price? What responsibilities to farm managers have to capture good prices?

2) The issue with canola isn't its crop fundamentals but rather 15 cent/lb soybean oil in the US (our high canola prices this summer occurred when canola was 19 1/2 cents/lb). As long as soybean oil prices are down, canola will not rally. A part of the answer has to find demand for world vegetable oil supplies (at least short term). Europes policy on bio fuels is a start in this direction.

3) A strange comment that will make people mad but part of the process to higher prices will be driving canola prices down to the point it finds additional demand. Prices down $10 to $20/t on canola would likely find Chinese demand. A half dozen cargoes of Chinese demand would tighten our canola S&D up and likely result in a lot higher prices at the end of the crop year (particularly if it stays dry). The answer to low prices is sometimes low prices (stimulate demand).

[ianben]

Hi Tom Charlie
I am sure you both agree it would be foolish to commit more tham 100% of expected yield to a contract.

So we are unable to sell all our prodution before it is in the bin.

Are these extra tonnes the problem?

A couple of months ago prices rose on the perception fo unfavourable weather your words I believe Charlie.
But yields have held up and now prices have fallen, again Charlie you say just a few boat loads to China and prices will rise.

So just a few tonnes over expected production have reduced price by $2/bu.

I still search for a viable solution to this problem which gives us better odds at the roulette table.
Tom says he needs $7/8/bu so do I.Lets find a way to keep prices round this figure. If it was a fair price 3months ago it is fair today.Those $2/bu will never find their way back to the end user so lets keep them on the farm.

That Ukranian wheat has dropped our wheat price by £7/tonne without a boat load reaching our shores.
Toms view that because we have a high yeild we can afford to sell for less is one of the biggest problems we have with marketing.
There will always be someone somewhere who has had a good crop and if they adopt Tom's stratagy their price will be the price we all recieve in this global economy.
I think this should be the first lesson we learn in marketing to make a big crop make a bigger profit!!! by selling less.

Regards Ian

[TOM4CWB]

Ianben,

I believe you could sell more Canola than you produce on average, by buying a put option on the WCE.

This has worked quite well in the past using the November futures as the option month to buy from...

A person could have bought a $350/t Nov put in August and had $25/t minus the cost of the put.

We have had very good relations with our buyers in that they will all allow us to overbook basis contracts and cancel them if our yeild does not turn out as well as we had hoped for.

We have not seen the futures drop $2/bu, so is the basis really getting wide over there?

I feel it is much smarter to speculate with options rather than grain, as the grain can spoil, and I contract it when there is a decent basis ( this means a buyer actually wants my grain!) and worry about pricing at a different time.

Does this make sense to you?

[TOM4CWB]

Ianben,

I got this from a Noth Dakota news source, and if you have more Canola to market, it could give a little insight on what is happening!

By George Flaskerud
NDSU Extension Service

FARGO, N.D. -- A larger-than-expected soybean crop was projected by USDA Oct. 12. The report indicated the crop is more than 2 percent larger than projected a month ago. Canola production also was projected to increase about 11 percent from a year ago, while sunflower production was projected to decrease by about 1 percent. What are the implications for marketing strategies?

Some recovery in the soybean futures market and basis would be expected after harvest. Targeting nearby soybean futures in the $4.45 to $4.70 range for making sales may be the best strategy. For sales in that price range, use a minimum price contract with out-of-the-money call options to capture a portion of any unexpected price increases. Consider completing the strategy on two-thirds of inventory by the end of January.

Compounding the problem for soybeans is USDA's projection for the South American soybean crop. Brazil's crop is projected to be about 6 percent larger than projected last month and Argentina's crop is projected to be about 4 percent larger. Their combined production is projected to be just 14 percent less than the U.S. crop. This second major soybean crop will be on the world market beginning in March.

The futures market was not rewarding the storage of soybeans as of Oct. 15. The carry in the futures market and a modest improvement in the basis would just barely offset storage costs in the months ahead. Unfavorable weather in South America or larger-than-expected exports and crush will be needed to generate price increases sufficient to justify storage.


Canola

For canola, targeting a price of $9 per hundredweight in Velva, N.D., to begin sales may result in selling for at least the average price of the marketing year ending July 31. Achieving that price by mid-March would provide a return to storage of about 50 cents per hundredweight.

Higher canola prices are expected because of limited world supplies. Canola production in Canada is down by 33 percent from a year ago, according to Agriculture Canada as of Oct. 11 (www.agr.ca/policy/winn/biweekly/English/index2e.htm). Agriculture Canada projects that total use of canola will be reduced by that same percentage. Ending stocks are projected to be less than half of a year ago, which were about half of the previous year's stocks. Ending stocks are projected to be only 7 percent of total use.

The reduction in Canada is being partly offset by production in other countries, especially relative to expectations one to two months ago. Germany, Poland and the Czech Republic had higher production than expected earlier, according to Oil World Oct. 12. Oil World indicated that ****seed and canola supplies at the world level would be down 6.5 percent from a year ago and 12.4 percent from two years ago.


Sunflowers

Sunflowers typically show sufficient price strength into May to justify storage and this year should be no exception. This strength will come, not because of the 1 percent decrease in U.S. production, but because of the tight world situation for sunflowers. Oil World indicated that world supplies of sunflowers will decline to an eight-year low during 2001 to¤'02 and that supplies of sunflower oil and meal will be very low. The tight supply situation could get worse if Argentina fails to come through with an acreage increase. Oil World indicated that heavy rains are delaying plantings there.



Editor's Note: Flaskerud is a crops economist at NDSU. He can be reached at (701) 231-7377

[ianben]

Thanks for all the info Tom I will try to use it wisely.
You really are the master at this wheel of fortune.
I 'm still trying to find a way to improve our odds.
Perhaps a new casino or a new roulette wheel, with a few more of our numbers on it, your old one is too loaded against us, too many zeros.
That Ukranian wheat for example has lowered prices worldwide because they had a bumper harvest.
Is this necessary most years they import wheat?
Just what is the quantity available?
A few boat loads too many again!!!
Is their a way to get this low cost wheat/canola direct to the low cost buyer without everyone taking a dive?
As I have said before other industries maintain hugely different prices for the same product in different countries?
How?
Why can't we?

Regards Ian