Statistic Canada Production Estimate

[TOM4CWB]

Elastic vs NonElastic markets for edible oils:

Errol, Perhaps you need to see how the NonElastic markets for Canola oil have grown. Nexera. CSCO Cargill Oils.

THe 'good guy'(Crusher) 'bad guy'(Grower) price makers are clearly on the sellers side... and the 'NONelastic' Canola market has grown many times in the past 5 years.

I am glad we actually have the specialty oils to supply... and the few cents a pound more to lever it out of growers hands is hardly a problem to those who have made the switch to High Stability Oils we produce. This year will solidify and expand this market... as the Cargill crusher at Camrose clearly indicates.

Try to talk us down all you like.... we are NOT buying the traditional message this year!

Cheers!!! And an Extra !!!! for you ERrol!

Grin

[errolanderson]

Guys . . . the strength in this market
lies in the basis. Buyers are already
sweetening the pot to entice $14/bu
deliveries. Also, have been heard of
guys locking a July basis level ($15
over) and then allowing the grower to
gradually price through the winter.
Sounds like a great deal as it just
takes a phone call from Arizona to
price, but is it?

I'll be blunt. July is at a huge
discount to the nearby. To me, this
makes little sense. It satisfies the
farmer need to remain unpriced and
potentially hit the home run this
winter, spring. But, it may be better to
flat price the nearby and replace with
call options.

Why? July canola could be at $500 next
summer if South America gets a crop. To
me this is a huge risk, but this
strategy seems to attract growers who
want to remain unpriced without dealing
with a broker. There are times when
commodity accounts can work better than
cash contracts.

On this market dip this week, bought
March canola $600 calls for $17/MT. Why
not price on the nearby, run to the bank
and use these calls for upside play
money?

If canola goes to $700/MT, you win. Plus
you did not lock into a huge inverse.
And if the market pukes unexpectedly,
then you don't get caught with your
pants down like in 2008. You can only
lose the call premium. Way less risk
(IMO) . . . But signing basis contract
under July makes little sense in my
head.

Errol

[westsider]

hey Errol,

i believe your horse is already dead but I still always enjoy and spend time thinking on your comments.

however on this one above i am not sure i understand where you are trying to go. Can you break this down for us here.

First you say the the opportunity is in basis and then go on to tell us about calls. If basis is going to be the primary vehicle for grower price discovery and not futures markets direction (which is irrational at best of times), why would we play that game with an initial ante of 45 cents/bu?

thanks

[errolanderson]

westsider . . . growers want to be long.
Calls offer this without risking the
farm.

Believe this is a safer long strategy as
the grower can get rid of the product
(no more storage issues), cashflow is
injected and if canola blows higher due
to South American production, you are on
board.

If your storage is great and cashflow
fine and prices blow to the moon . . .
great. Last one to sell wins.

But don't count on it in this world
market.

[vvalk]

Errol. You seem to feel like futures will go down
and canola futures will follow soybeand and other
oils. if that is the case then basis levels will have
to sky rocket for companies to fight over the
limited canola we have. How can you participate
in better basis if you deliver and buy calls? That's
pretty much the last thing you want to do. Same
with delivering now and pricing of July

[errolanderson]

vwalk . . . you bring up a very good point.

you are right that canola basis levels may be extraordinary into spring. and you are right that owning calls would not capture this situation.

the question for the grower is; do you simply lock the bins speculating that cash bids will go higher (that's the highest risk strategy IMO)

do you lock the current basis and gamble on the futures moving higher?

do you sell the cash and replace with options that offers your futures upside potential, but guards against a global meltdown?

there are a lot of smart growers/analysts/buyers viewing this site that can offer more to this excellent question. believe it is up to the growers risk tolerance on which strategy to use.

As is obvious, i'm leaning toward the risk protection side of our canola market. I'm stirring the pot here, but feel that the last few bushels of canola left in 2012-13, may be done at lower price levels than today as global commodity deflation kicks in.

[Gofer]

Options? Does anyone actually use them ?
They have nothing to do with farming. Once you sell the product you are just speculating like any other "investor".
When i tried them they just cost me the premium. Only once did they pay and then because the market is so thin I had to exercise them !