Marketing question

[lesm]

Considering how little canola thare may be this year, is anyone picking up options or going long dec-mar canola?Sure looks like this may be the year to do it.

[charliep]

Just curious on the why? Would you be texas hedged? Long canola in the
bin/growing crop and long futures or calls? Are you getting back in the
market for new crop you have already priced? Unseeded canola that is
keeping you out of the market?

The only other question in my mind is how much of the reality of the
smaller crop is getting built into the market? You put your own number on
size. $420/tonne canola futures is pretty different than 36 cent/pound
soybean oil. Canola oil has specialized markets but ...... Canola meal will
continue to be a struggle - particularly if issues around salmonella into
the US don't get resolved.

My two bits.

[lesm]

Charlie, a straight out gamble. Sold 25% of 09 crop and none of 10 crop. The market gives you very few opportunities where the odds are in your favour and I believe this is one of those years. I farm in an area where we were 95% seeded and the crops looked pretty decent until I went in to do a second spraying and was surprised to see how much the canola had deteriated and we never received nearly the amount of rain some other parts of Sask. received. I believe the industry has no idea how little canola there will be this year. If I'm wrong, I'll have more canola to sell, if right, will profit on the futures.

[btjadenlepp]

wow, if you ever questioned the old
adage that farmers are chronic bulls,
here's proof. long the old crop, wide
open on new crop, and buying futures -
that's not a texas hedge that's a
triple-long!

by the way i'm not saying this is a bad
strategy, it could work out well and if
all possible/likely financial outcomes
have been thought out and taken into
account, that's all that matters. i just
want to point out that i don't think it
falls into the category of risk
management.

[sparki]

i think what lesm is saying os that this year feels like the one year in many where the stars are lined up to let it ride. in a long time frame there is less risk, that is if you have the time

[charliep]

I always like the expression bull markets have long tails. Seems we are still suffering from the hangover from the 2007/08 party (or maybe the old joke where a farmer finds a genie in a bottle, asks for $15 canola on the first two wishes and then on the third wish, makes the same request/explains to the genie this time I am going to sell). Not that much of a speculator but my strategy would be to have price targets and sell.

[charliep]

I always like to look at long term charts to give me discipline.

[URL="http://farms.com/FarmsPages/Markets/tabid/214/Default.aspx?page=ccharts&sym=RSN0&data=M"]monthly canola[/URL]

<a href="http://farms.com/FarmsPages/Markets/tabid/214/Default.aspx?page=ccharts&sym=ZLQ0&data=M& quot;>monthly soyoil</a>

[lesm]

Charlie, the moment we start farming, we become gamblers, albeit some are huge risks and others aren't. I've got neighbors that have seeded $9/lb canola on June 17 knowing that the first average frost date is Sept 5 (casino is a better risk). 370/tonne was the low of 2009/10 with a huge canola crop and Mar 420 may be a bargain with 2 more crushers on board. Chrushers will crush at a negative margin (short term) rather than shut down their plants. If I was a crush plant manager or an exporter I'd be downloading Bon Jovi's song "Living on a prayer" if I'm thinking I could secure all my years supply for 420/tonne. Could be wrong (half the time I am), but this is shaping up to be one interesting year!

[sparki]

lesm the other song that is being sung is dont worry, be happy and a close second is one boubon, one scotch, and one beer

[charliep]

You could be right with the caveat you have to make some assumptions about soybean oil/palm oil prices. All said from a supply chain perspective and a long term maintainance of market, I would a lot rather be talking about a 12.5 mln tonne canola crop sold for $350/tonne ($8/bu) than a 10 mln tonne crop (number out of the air because I don't know) sold for $440/tonne ($10/bu). Do the math and the gross income is the same.

I have to put your comments in the perspective of the multi posting discussion around risk management and farm programs as indicated by the Statscan financial survey. Agriculture is indeed an interesting business.

[mbratrud]

Yes Charlie over all the math is the same but very different for individual Farmers, some are going to win big time and some are going to simply have very little to sell for a decent price.

lesm - I wouldn't necessarily call what you are doing a strategy, luck is probably more apropriate. I would be willing to guess that if 18 million acres of Canola were seeded and the crop was looking like a strong average crop you wouldnt be bragging about your "strategy".... but good for you you lucked out now don't do something stupid and sell it for under $400 sometime in the future.

About going long futures.... Are you so sure??? know a couple guys that went long the day a couple days after the Aug 20th frost in 04 and yes the Market went up and within a month or 2 had droped $2 per bushel, that hurts.

So my advice would be dont go long if you cant afford to loose $50 - $100 a tonne.

lesm, I know lots of guys that have tonnes of bin capacity and good cahflow, sometimes having that ability can pay of well for you in the long run.