FX in grain marketing

[cottonpicken]

What was Kennedy's quote about a farmer.

"sells wholesale,buys retail and pays the freight both ways"?

[bucket]

Guess we could solve the problem by having graincos write the cheques in US dollars.

That way the elevation and freight charges could be paid in usd which would cost them less as well. Oops . Gotta go find the tin foil.


Good traders and graincos view.

Sure glad you were hired by ritz to represent farmers concerns.

The outcome is a foregone conclusion.

[SASKFARMER3]

That's a good explanation now here is one back.
Why did Winnipeg fail. Why not make the grain companies use a price point we could all work off of.
Why the move to USA point.
Its easy one I'm seeing get the hell out of growing any wheat and giving it to the grain companies then.
Go with another cereal.
Kind of fun to drop HRS.
AH farming.
Their is an answer for every thing why we have to pay.
Ah shit I dropped the soap.
Ouch!

[Kodiak]

Thanks John. This forum needed that explanation.
Those wanting to reinforce the fact they are able to erupt and take cheap shots, will do just that. But the shots won't add any light to the discussion, just smoke.
But be assured the majority will read your posts enough times to understand what you are saying.
I know that for me your step by step explanation filled in some gaps in my understanding. The ranting that's gone on here for months sure didn't!
I appreciate your effort John - and the fact you have thick skin

[bucket]

Principle 1 thru 4 are all about buying wheat.


Take it a step further and make the cdn graincos the seller to the international end user buying grain.

It seems the graincos have nothing to say about that process. And that's because the farmers paid their fx risk up front.

[jdepape]

Principles 1 through 4 relate to <b>TRADING</b> wheat - buying and selling.

[boarderbloke]

The FX risk is in the futures price! As the USD has increased in value vs. other currencies around the globe, Futures prices of grains based in U.S. exchanges have dropped! Look at wheat, corn and beans!
Countries around the world have said to the USA exchanges, "No, we are not giving you more of our currency(what ever it might be) for a bushel of wheat or corn or beans! We're going to give you the same amount of "our currency" for the same bushel." When that happens, a bushel is sold for fewer USD's, the result being a drop in futures price at the exchanges.
Without any "event" to substantially change the intrinsic value of these grain commodities, US futures prices will drop, they have to, in order to stay competitive in a global market place, that's the open market at work.
The way I see it, the exchange risk IS IN the futures price, not the basis.

[jdepape]

boarderbloke:

you're absolutely right - when the USD strengthens against other currencies - as it is now - it pressures US futures markets.

But because we are trading in Canada in CAD, the result of that is simply flat price risk - US futures are pushed lower.

There is price risk, but when you're hedging your Canadian wheat program, it's not an FX (CAD/USD) risk that you need to hedge - it's flat price risk.

If you were a wheat trader (not a farmer), how would you hedge that?

[fjlip]

CAD relative to USD is at $0.80, but what is CAD relative to our other markets? Has that changed? As Boarder says the buyers will NOT pay more so futures drop to find buyers. I'd guess grain sold to USA might increase in value but maybe not else where.

[bucket]

Canada's dollar should have had us cleaned out pretty quick in wheat.

Sadly our transportation system won't allow it to happen.