Time to Consider Buying Calls?

[charliep]

The markets are full of red/negative numbers again today in reaction to the tragic events in Japan. Impact on grain/oilseed shipping short term and longer term questions about the impact on the economy. The question of the potential nuclear reactor disaster over hangs the markets as well.

If you feel the market is over reacting to the downside, is it a time to consider buying calls on the dip and to have some insurance against weather markets this summer?

[wd9]

Considering 2 mil tones canola goes to japan a year, do you think this is a dip?

[cottonpicken]

My technical reading has us no where near floor.

[charliep]

An idea from a good friend of mine (Ken Ball/Union Security) daily email on buying calls.

Begin quote:

*****BUYING CALLS – The current sharp breaks in the grain and oilseed markets will hopefully give us some chances to start to accumulate some call options on a selection of markets over the next few weeks. Having an inventory of out-of-the-money calls heading into spring seeding can prove to be very valuable if we start running into any weather issues and related market rallies. Pre-owning the calls allows you to be able to sell into spring/summer rallies without the fear of having to finance the short hedges should we get any sharp price blow-ups. Also the calls could become your crop replacement if your farm has significant seeding/growth problems.

End quote.

The idea is too have an insurance policy in case the market blasts higher this spring.

[poorboy]

Which calls do you think a farm should look at for canola?

The canola calls are often not very liquid and overprices, and soybean calls may not rally enough to cover any unseeded acres in canola.

Looking for thoughts.

Also for barley is there anything you can do. Barley futures are a joke and barley does not seem to follow corn anymore.

[charliep]

Canola options are a fishing expedition both from the availability and price side. Would use CBT bean options as as alternative.

Only choice on feed barley is corn - expect them to trade more closely with barley this spring as feed grain supplies in western Canada tighten up. Also expect some Saudi business May forward. Hopefully the CWB passes along the price signals. Corn options although not perfect should be a good substitute/proxy for feed barley.

Others thoughts?

[charliep]

Should have been soybean oil options. Close relationship soybean oil and canola.

[charliep]

No one is commenting so will toss my two cents.

Will need to follow the impact on stored grain as well as impact on their 2011 crop from both the earth quake and tsunami. Livestock numbers will also be impacted - feed use and meat availability. Processing capacity.

Long term impact of the unfolding nuclear disaster. Soil contamination? Food supplies? Livestock (current and future)?