Grain Marketing for Dummies

[cuban_assassin]

Thanks for the info fellas I appreciate and respect experienced opinions.
My concern this year is we need an average selling price of 10.50/bu out of canola to break even and 7.00 / bu for wheat to break-even in 2014. We are currently able to price into profit on our oats and peas. I am concerned that these prices or higher may not be attainable this crop year. What I am wondering is what can I be doing differently now to get as close to these targets as possible. Right now we can achieve $9.75 canola and 6.60 for wheat with some of our basis contracts. At these prices we are not priced into profit, so the question is what options, if any, are available to increase our returns.
I should mention if prices went up to our break even levels we would sell 90 % of our remaining production. Our break even numbers include our total cop, which includes labour and return on land and equipment.
Any thoughts would be appreciated. TIA

[blackpowder]

Our #s look similar, Cuban. Nobody can say with certainty we'll get those prices, but I think we should get close.
To your other question, my biggest problem is discipline.

[charliep]

rockpile

Perhaps it comes to the discipline factor that blackpowder talks about. A hedger is taking a position because they have a price they are happy with or at least can live with/contributes to their financial goals. You are going this way versus a cash contract because you want flexibility/not tied to a delivery commitment to a company or you are unhappy with the basis/think it will narrow. As John DePape has highlighted, a futures contract can also help you capture carry in a market by selling deferred months.

A speculator takes a futures position because they have a belief about the future direction of prices. They want to buy cheap (or in the case of grain inventory - store) and sell more expensive down the road. Not saying business replacement is wrong - just that long. Has been explained much better in previous posts.

The one thing a futures contract really makes you do is pay attention. You will get direct feedback on regular about how successful your strategy is. You have people who trade here but my feed back from others is that physical inventory makes it easier to ignore what is going on in the market.

Didn't post a new topic but I find the move in MGEX wheat today really interesting. March contract is down to $6/bushel again testing support. Will it hold? A good time to get long/buy calls?

As a futures market experience, right down a trade on paper. $6/bu wheat long. 5,000 bu contract. Total value $30,000. Margin $5,000 (my number/not real). Market goes to $7/bu. Value of the contract - $35,000. Profit on trade - $5,000. Return on your trade - 83 % based on $6,000 you have invested. Not a farmer way of thinking on replacing inventory but how a speculator would think.

What happens if the market goes to $5.50/bu. Value of contract $27,500. Loss on trade - $2,500. Value of your investment cut in half.

[charliep]

Need to fix a mistake.

As a futures market experience, right down a trade on paper. $6/bu wheat long. 5,000 bu contract. Total value $30,000. Margin $5,000 (my number/not real). Market goes to $7/bu. Value of the contract - $35,000. Profit on trade - $5,000. RETURN ON YOUR TRADE - 100 % based on $5,000.