Canola Wow!

[Choice2U]

Actually, that is what the $500 put traded at today. If the rally continues, I will be more than happy to buy at an even higher price. I am looking at this as price protection only...no speculation which enters the picture when one is trying to hit the top...or experience the bottom.

[errolanderson]

This is a strong technical rally led primarily by speculative fund buying. But a spec rally typically has a short shelflife.There's not too much fundamental under this market move.

July canola appears to have heavy resistance at $569/MT. More up possible. But Dow Jones may be vulnerable to profit-taking . . . soon.

Crude oil is also roaring which is helping canola. We traded Nov $500 puts as low as $11.50 late day.

Price volatility will likely increase straight ahead.

Errol

[bucket]

choice2u

I am no expert but november canola for september thru november is 11.73 to 11.54 at XYZ grain co moose Jaw (not going to advertise their name you guys can figure it out). Targets might trigger higher.

Why not just sign up 40 mt at those prices instead of paying 28 cents a bushel to protect yourself at 11.26 to 11.00? If you are happy with those lower prices why not take the higher number for a percentage of your crop?

[errolanderson]

Bucket . . . yes, if you sign a deferred
delivery contract, you will net a higher
flat price than purchasing a put option
outright. I'm a believer that growers
should utilize DDC cash contracts up to
their production level . . . that might
be between 20 to 50% of your expected
new crop production by harvest. Past
this point is where put options fit into
a farm pricing plan.

There is no delivery obligation and no
grading risk with 'puts'. With XWZ grain
company, they want your canola to show
up next fall in 1Can shape. If you don't
have the grain to fill these contracts,
payout penalties are possible.

You can protect up to 100% of your
expected production using a combination
of deferred cash contracts and put
options and/or short hedges.

Hope this makes sense . . . .

Errol

[bucket]

So pricing 20 percent of new crop at these levels wouldn't be a bad idea?

[Hopperbin]

Well since I sold the last of my old crop canola I just got a whole lot more bullish on the canola price. First off another new Canola crushing plant in the usa west coast to come online in early 2013. And Chinese dairy producers now committing to use canola meal and they want to use it in fish food also, some pretty big markets. Could it be possible that canola meal could start trading a premium to soymeal like it should?

Choice in my opinion these guys willing to put their life savings on the line to write these put options most likely have it figured out. The futures is not likely going to go below 487.5 per ton, which is the price where you start to be in the money. Then weather you exercise your option at the right time is another thing. Any farmers out there on the other end of this put transaction? I did have a company trying to convice me to write these options once and I kinda told them where to stick it, not sure that was the right thing to do, I just like to play it safe.

[errolanderson]

hopperbin . . . these are generally
covered writes. These traders are
guarded with short positions. Anyone
underwriting a Nov $500 put for only $12
has a lot of risk on their hands.
Underwriters don't have an unprotected
position as they could be out-of-
business through one big sell-off.

bucket . . . yes to your selling cash
canola question. canola is overvalued
right now.

Errol

[Choice2U]

Hindsight is a useless tool on whether you pulled the pin at the right time. It's only good, is to make one revisit the decision based on the factors at that time and if you say "well, knowing what I knew then, I would still have done the same thing", be happy, if you missed the boat on something, well, learn. When watching the markets, I like to lock on the way up and not panic on the way down. This market could change today if the TSX drops 500 points in the next week.

I don't like to lock in any more than 20% of my average production so I have added puts into my plan. Two years ago, when the market was dropping over the winter, I locked in about 40% (looked like a genius from Nov to April until the floods came)but then my production was cut in half and I had nothing left to sell at higher prices.

28 cents per bushel is significant but I bet in everyone's hindsight, you all have sold canola and then had the price move up 50 or 1.00/bu. That is a cost, just like my 28 cents. Only difference is that I don't mind spending 28 cents to ensure I have locked in a profit with the ability to capture an upside.

[errolanderson]

Feb 24th . . . canola growers note:

November $520 put options traded today
for $16/MT

$520 strike - $16 premium = $504/MT
($11.43/bu) less your fall delivery
basis. Rally continues to erode
(cheapen) protective put options for
fall.

Errol