Rolling the canola basis?

[Hopperbin]

Ok this get interesting.
Since the price drop I am considering rolling my March delivery basis into another futures month now before end of month considered feb. 25 deadline with Bunge they will price it on the futures of that day if they do not hear from me, that is policy. At this minute rolling to may would cost me 8 dollars on basis, rolling to July 15.1 dollars, to Nov. pays me extra 12.1 in basis and Jan pays me extra 6 dollars in basis. The advantage to using Next Jan basis is that I can still deliver in March this year and hold off pricing to end of Dec 11. I don't get paid till I lock the futures price.
Bunge is the best grain company to deal with on these issues as far as I am concerned they are the most fair. I don't think Cargill would even give the option of rolling to Jan 11. Then again hard for me to know about Cargil when we are not on talking terms. Anyways what does anyone else think they would do in this case?

[charliep]

Get asked this question and never sure how to respond. I always hate to suggest eating carry.

Why not just sell as per the contract and buy/get long futures? deposit 90 % of your money in the bank and post 10 % as margin.

Just to get everyone mad, you are not a farming business decision. You are making an investment decision about where the best place to have money is - in the bank or in the bin. You are a speculator comparing rates of return and risk.

[Hopperbin]

Thanks for responding, Interesting, I don't typically consider buying futures. Its been a while since my marketting class. What does it cost these days to Buy into a Jan 11 futures. This one contract is 10,000 bushels pricing today would give me 12.2 per bushel yet for 122,000 dollars in pocket. Considering I purchase back the same amount of tons back, what would it cost meÉ Oh no, question mark not working. As far as I am concerned if it has something to do with grain or machinery it is a farming question and also investment, put together.

[Hopperbin]

Sorry the 10 percent did not sink in at first. so it would cost me 12,200 dollars to buy this exact tons back on the futures exchange. If that is correct then if the price drops a further 10 percent which it just did it would cost me another 11 grand margin if I want to stay in the game.
11,000 is aproz 10 percent less than 12,000. Using the money now is actually an issue, money is still cheap only 4 percent per year, but banks have no sense of ha ha when over the limit. hahaha.

[Hopperbin]

Ok posting margin is like collateral for buying a house or car. You get the money back, but what is the cost for doing the transactionÉ Question mark not working. That is what really counts, it is a cost of doing the businessÉ

[charliep]

A canola contract is 100 tonnes or 4,400 bushels. Your cost is the trading fee (likely $100 but needs to be negotiated) and posting/maintaining margin (interest cost/impact on working capital).

How many others here use business speculation (selling cash/buying futures) as a part of your marketing strategy? Experiences?

Will note the differences in emotion between the 2 processes. One is nervousness about the value of grain in the bin when markets go down. The other is regular statement that comes to your house in the mail (or heavan forbid, the panic call from the broker wanting more money as margin when the market goes against you). Both involve different emotions but have a similar financial outcome. They can evoke different emotions from your spouse - opening a envelope which shows a loss on speculative futures account will likely have a different feel than trying to explain the lower value of grain in the bin.

You could buy a call as well but that has a premium cost. Tools in the tool box.

[Hopperbin]

2 cents per bushel on 10,000 bushels is 200 dollars close for buying in, is it another 2 cents to sellÉ
Still minimal, interest on margin of 12000 at 4 percent for one year would be 480 dollars. For a total of .6 percent for the total value if cost of buying the future is only once. Just looking at the cost of the transaction.

[Hopperbin]

Least of worries from spouse, lets not get into spouse. That is another topic.

[charliep]

Hopefully some of the guys that do and not the theory guy can help out.

My understanding (and experience from a few years ago when I had a
spec account) is the $100/trade (2 cents/bu) should cover both in and
out. Also would suggest you would never hold a trade for a year so
interest costs are high. Impact on working capital/need to talk to the
banker are another consideration.mmmmmk

[charliep]

Ignore the mmmmk. No meaning. Just a cat standing on the key board.

[Hopperbin]

hmmm, spouse and the cat aside, now what to do with the basis contract?

[farmaholic]

Bin Hoopered (tongue in cheek)
Canola seeded spring of 2010
Canola harvested fall of 2010
Canola Basis contract signed
Canola pricing opportunities missed
Canola Basis contract rolled
Canola Delivered against Basis contract
Canola priced up to December 2011
COULD BE UP TO 1 1/2 YEARS BEFORE YOU GET PAID SINCE THE WHOLE PROCESS STARTED!!!! Sounds a bit like selling Board grains in Western Canada!! Just kidding, but it sounds eerily similar. At least it was by your choice.

Rolling to the positive basis isn't a bad thing if cash flow isn't a problem. You said you can still eliminate the storage risk by delivering this March. Then the only risk is the futures values falling even further. Good luck deciding!

[Hopperbin]

Give a joke get one back. farhollic if you signed basis after harvest and delivered then rolled are you not better off now than if you priced at harvest?

[farmaholic]

Hopperbin
Your right, In the March contract, even after the slump($44.00/tonne) in the market over the last few days your still nearly up $100.00/tonne over the price on Oct. 4/10 which was about $478.00/tonne(likely with a negative basis at the time). Even if you rolled to Nov/11 for the extra $12.10 positive basis at yesterdays close of $563.00 you would net a little over $13.00/bu. Still respectible. I still think this thing is going to recover, but it may be a slow choppy climb.

[Hopperbin]

The come back today relieves some pressure, my current mar. del. basis is 23 under. gives me a price of 12.83 per bushel. At that level I will price it, just in waiting mode now.