A Marketing question,advice needed

[malleefarmer]

The australian 11/12 wheat harvest is dec11 jan 12.

Thinking quite possible I will foward sell up to 30 to 40% of wheat expected production,via physical contracts in march april may 11 period when there are weather scares in the world for $320 to 340 aud,dec 11/jan 12 delivery.

What calls option strategy should be used to cover the upside on these sales,if the market heads north.

If i trade nearby months premiums are cheaper but going further out more volatilty and intrinsic value.

For me to get $340 cbot dec 11 would have to be about 950 cents or even a tad more so what strike price is advised?

ps the australian market isnt fluid enough has to be cbot or any of american exchanges.

Thanks in advance and ps im a novice with basic understanding so be patient and gentle i know im amongst experts.

Or do nothing and accept a portion of my crop is priced at good levels? Or do not foward sell and wait till market goes higher,and sellat $360 plus if it gets there,ahhh the joys of marketing grain in australia

[TOM4CWB]

Mallee,

If you have lots of cash for margin calls,

I would sell the $9 CBOT Call at $1.07/bu revenue;

While buying the $9 put option at $1.57/bu cost.

Do it as a spread so both positions are on at the same time.

You then have a put locked in at about $8.50/bu for Dec 11 and the market must go over $9 till the Call actually starts costing money.

Your higher grain value will likely pay for this if the markets go into orbit... so 30-40 percent sold is likely as high as is tolerable.

I took the Option values off my DTN... there are over 4000 Dec 11 $9 open interest.

Hope this is a start for ideas!

[btjadenlepp]

tom is more familiar than me on the paper
side of it so i'll leave that alone for
now.

on the 30-40% wheat cash sale idea, for
mar/apr, that's 2-3 months post-harvest -
correct? is off-combine movement ever an
issue in pricing %'s?

[TOM4CWB]

Brenda,

If these kinds of options can be bought and sold as a spread... it does not look like a bad deal.



This far out; 2011-12 my Callum Downs would normally suggest a swap with CBOT for cash sales much closer to harvest... 2 months off. Almost without exception... if we wait long enough... even the CWB basis gets/got better closer to delivery. Now CWB elections are over... the basis is going south... but if the contingency fund is topped up... perhaps 2011-12 might not have 'horrible' basis levels in the spring of 2011 for the 11-12 basis.

I am waiting for our AB Spring Price endorsement coverage/cost before going further on wheat risk management.

I didn't think of it before... but since the CWB already deducted my force majeure... does it cover natural disasters like 2010 where we had NO milling wheat and only feed wheat grades?

[TOM4CWB]

Brenda,

To BE clear;

Mallee was hedging Dec11/Jan12 CBOT.

"on the 30-40% wheat cash sale idea, for
mar/apr, that's 2-3 months post-harvest -
correct?"

I believe a better basis could be nabbed further out when the swap to the cash sale was made from the option.

[malleefarmer]

My rule of thumb here is once wheat gets to $330 port basis which equates to $300 farm gate price i sell maybe in small licks and follow market up.
I lock in a good profit at that my yields are 1.8 t/ha average and costs of about $130 per ha to $160 depending on fert regime.

But there is always the worry that market may run away from you.

Re swaps can get burnt tom just same as futures transactions justs banks make the margin calls. A call option you have a known cost and can never lose more than that. Its a case of mix and match.

This year it peaked at $330 in august tried to get a sale with various companies but was sold out basically in a few hours that day, got on board the next day at $315 which turned out a good price as it only had a $30 spread down to feed hence ive put all my feed wheat into that contract.

To all my detractors im not trying to be a smart arse, just discussing marketing which is what this forum is actually about.

For instance i would love a german or russian on here to see how they market grain its all of interest to me.

If you want me to go and melt into oblivion in the 40 degree celcius heat so be it, easy dont read post by mallee those who want to will.

[TOM4CWB]

Mallee,

Thanks for getting be back in the saddle again.

It is easy to do the futures with the CWB and not worry about options.

My 'better half' was always annoyed when the futures/option cost money... even though the cash payed more than the offset.

If we use our Crop Insurance Spring Price Endorsement (SPE)... it has a similar effect as options... and even though it payed us nothing this year... we were very slow in adding sales BECAUSE we had a base locked in on the SPE policy.

Hope the rain allows you to finish harvest... and you have a great new year!

[cottonpicken]

IMO,i would want to see this chart breakdown
before i started to price,but pricing a little now
would not be viewed as a mistake no matter what
happens.30-40% seems a little to much to me but
wtf .....


http://charts.insidestocks.com/chart.asp?
sym=CIF1&data=A&jav=adv&vol=Y&divd=Y&evnt=
adv&grid=Y&code=BSTK&org=stk&fix=

=its the cci chart if link doesn't work

nia dyodd

[burnt]

cott - where do you think is this chart headed if you apply Elliott wave to it?

Wow.

[mbratrud]

I hate buying Calls as a replacement. I would rather just sell cash and call it a day.

Toms idea of buying puts and paying for them with Call premiums is ok, but it limits your upside and really would only pay off if the market crashed hard. Which in that case the cash sale would have done you just as well.

IMO incremental small cash sales is the best way to go, in addition to that you can look for cheap put options maybe slightly out of the money and nearby. to protect downside until you are ready to make additional cash sales.

There is no perfect way to be risk free other than making a cash sale against product in the bin! Wouldn`t it be nice if there were. At the end of the day you have to decide if you think the market is going up or down and what risk your farm can afford.

Just my opinion!

Happy New Year everyone.

[btjadenlepp]

cotton what's nia dyodd?

[TOM4CWB]

mbratrud,

"There is no perfect way to be risk free other than making a cash sale against product in the bin!"

I am patiently waiting for the day when 'designated area' wheat growers... can do this very simple risk management option:

Sell CWB cash milling wheat from August 1 to July 31st each year.

Delivery aside... storage at fair rates.

It is hard to fathom... January 3rd 2011... and we still cannot cash sell our milling wheat without going through the CWB pools.

WOW.

[TOM4CWB]

dyodd

Do your own due diligence...

[cottonpicken]

imo-in my opinion
wtf-what the ****
nia-not investment advice
dyodd-due your own due diligence

This is a guy by the name Norcini-very good tech
guy,uses more of a fib type analysis.

http://jsmineset.com/wp-
content/uploads/2010/12/Year-end-Gold-and-
CCI-2010.pdf

[cottonpicken]

Frickin links,click on home and scroll down to a dec 31
series of charts.