Markets Beginning 2015

[ado089]

Did a couple of bins today for March delivery July futures picked up for $2.50 under today. Might not be the right move but I don't think it was the wrong one.

[charliep]

Just highlighting the nearby futures months have a higher price than deferred ones. Prices as I write for canola futures.

March - $450/tonne.
May - $443
July - $441
November - $430

Normally, there would be carry (interest and storage value) premium in old crop futures months. The market needs old crop canola until new crop becomes available and should be willing to pay enough to make storage worthwhile. Today, the futures market is paying more for nearby months than deferred - as highlighted in the other posts here, a signal it wants the canola sooner rather than later.

You would expect some inverse in new crop (November) but with a normal carryover this year (1 to 1.5 MMT July 31) and uncertainty about 2015 Canadian canola production starting with acres this spring could mean a tighter supply demand in 2015/16 and a new crop market that either tightens the inverse or moves to paying carry (interest and storage) right into new crop.

Hopefully this explanation works. I will leave for discussion the strategies that may come out of this. I will put the caveat on from my side that I am still think soybeans have a lot of downside. Canola will hold up better but is not immune for lower prices.

[Hopperbin]

Holy crap my 0 jan basis is now worth 10.52 per bushel.

[Hopperbin]

Charlie can you explain why one grain company can leave jan basis contracts open till jan 20. While other companies make you set futures price by dec 15 for a jan contract.

[ado089]

Stormin, what I did is what charlie is talking about. I did the basis contract for nearby a $12 under, July basis is also $12 under. There is almost a $10 spread from the March futures to the July. So by immediately rolling I improved my basis by $10 and get to stay in the market until June. There is a bigger spread to Nov but there are way too many unknowns for my taste to swallow that big of an inversion.

[ado089]

The roll to new crop also comes with $30 basis hit so you loose more than you gain.

[charliep]

Actually I can't. Every company runs their pricing differently based on their business needs and risk management strategy. You have to be aware of what the companies policy is and live it with once you sign the contract.

[Hopperbin]

Ado you may well have done very well. One point is you forgot the 3 dollar per ton charge to roll. What is your cost for rolling two futures months?where do you find a grain company with basis the same in those months?

[ado089]

Hopper, it was Clavet. It's -$2.50 basis picked up. I think because I did it all at the same time they don't charge for the roll.

[crusher]

Ado that seems like a good strategy. In my backyard we have a wider basis for spot and narrow further out so the execution wont work here. I would suggest you sell the cash and buy back the July. You get your money now. If you don't have a futures account - get one. Just for this trade it would be easy to get your feet wet.