FX in grain marketing

[SASKFARMER3]

Because his check is in the mail and that board seat is opening up! Ritz is passing he wants some foreign position!

[bucket]

A grainco rep hired by the government to explain their formulas.


Great hey?

[stonepicker]

Wow, a very knowledgeable guy comes on here and takes the time to explain the grain markets so people will have more knowledge on the subject, and you guys do your best to discredit him. But then again these are the same guys that think bto is a great read.Pretty soon there will be only whiner's and such on here. My glass is still half full.

[SASKFARMER3]

Stone you ever think that some on here also took marketing at a university! It was a nice explanation! But like Charlie said he doesn't want to say how much their making! Dah follow the money!
Join the real group and be a realist! The glass is half full will eventually go rancid!

[boarderbloke]

boarderbroke: ...com'on John! lol

seriously John, I'm glad you agreed and added the IBM point.

Re your "imaginary" market with Canadian (CAD) futures. I agree that - all else being equal (or unchanged) - the CAD futures and the USD futures for the identical commodity should reflect the current FX rate. Just like IBM stocks in NY and TO differ only by the FX rate.

Let me ask you John,,,when you're in your Canadian stock brokers office, and you sell the 100 shares of POT-NYSE from your account at $37.33USD. Would you be cool with you broker putting $37.33CND/share in your pocket?

I'm sure you wouldn't tell me that the exchange should go to your broker, along with his other costs(basis). I would think rather, you'd want to end up with $37.33 plus the exchange, which would be closer to the $46.25 that the same shares pay on the TSX trade at.

Canadian farmers are saying the same thing should be reflected in grain prices.

Had to use POT as I couldn't find IBM on the TSX.

Regarding grain, what this comes down to is, the graincos want the fx and farmers(atleast those that are aware) want the fx.

In my opinion, the method the graincos are currently using to display their grain prices is unethical and fraudulent. The strategy is being used to deceive farmers. We all know it because it wasn't all that long ago people were posting on here about pricing grain at zero basis or close to zero basis, completely NOT ACCOUNTING for currency exchange. Suckers!

[farming101]

Thanks for all comments on this thread lots to think about.

Imaginary markets are one thing.

Real markets are an altogether different animal.
One only has to study what went wrong with the US oat market last winter to realize that Canadian markets and US markets are not the same by a long shot. Futures markets can at times eat their participants for lunch. With oats it was not just new producer sales that could not be made to capture the price increase; there were many with bona fide sales on the books that were not able to deliver their oats in a timely manner and keep a lid on the futures market. There were other factors at work too but one definitely was low stocks of oats in store in the delivery area.

One poster on NAT refers to the Minneapolis wheat exchange as the Thunderdome. Two men in, one man out.
As far as price discovery, some have argued and rightly so that some exchanges have ceased to function as a proper price discovery tool. Lack of convergence, meaning the contract will go off the board, all positions retired, with the resulting 'price' not the same as actual cash prices in the delivery area.

Not saying that farmers should avoid forward pricing and using exchanges or other tools to capture future gains in the market and thereby improve profitability, but at the same time everyone should be well aware of what it feels like to tell the banker you need some more margin money, only to realize you cannot make your margin money back by selling the actual grain.

[SASKFARMER3]

The more time I had to look back at this the more Questions I had.
This isn't a basis example MR Dep presented its a hedging explanation that grain companies do.
Nice one.

Where is freight and handling in basis. Disappeared I guess.
Why do I care how a Grain company hedge their risk that's their problem.
I want a cash price thats it. Just a cash price break down to my location, Kind of simple request. But why should we have a simple answer to a question in Canada, The land of Smoke and Mirror Grain Buying.

Funny thing is if a company in USA tried the same Bull Shit that is going on in Canada they would be called before Commerce department and have to answer. Why in the USA are companies scared of Gov yet here the Gov kiss their ass. Maybe the USA system Companies know that Gov can make their life a living hell if it wants to.
Now one thing is certain the Grain companies went from a nice 25 to 35 margin to well over 90 a ton in a very short time. Larger in last while is my guess.
Smoke and Mirror is not cutting it.
Nice job.

[Braveheart]

US companies quote exactly the same way. Check their cash bids on any ND grain co website.

[Braveheart]

One of the habits of Stephen Covey's 7 habits of highly effective people is, "to understand before being understood".

Thanks John DePape.

[SASKFARMER3]

ND elevator just now.

Wheat (HRS) Feb 15 5.31 basis-45
Or.45 cents off the Min wheat price.
Farmer in Nd gets 5.31 take home or $6.63 Canadian when the check clears in RBC Canada account.
So again explain. The Canadian System vs the USA Please.

[SASKFARMER3]

Brave its nice to have hero's but I think you should move a little higher on the Grain run.

Have a great day.
Good book But also read the Wealthy Barber.
Your lawyer Banker and Accountant work for you. Not you work for them.

[jdepape]

Apparently I have it all wrong. So, boarderbroke, bucket, SASKFARMER3, katoe - and anyone else who wants to play, here's my questions to you:

1. Imagine you are a grain merchant for a big grain company. Say you sold 50,000 tonnes of wheat at $300 USD fob Vancouver. there's no doubt you would buy 50,000 tonnes (1.8m bu) of futures (367 contracts) to hedge the sale. But how would you hedge your FX risk? (Hint: the total value of the sale is $15M.)

2. Based on that sale, what would be your bid in CAD in SK? How would you hedge your FX risk now?

3. How would you calculate the basis for a basis contract (in CAD) for a farmer?

4. What would you do to hedge your FX risk in a basis contract, like the one in question 3? (Hint: I already showed you, but if you have better ideas, I'm all ears.)

3. The average basis for #1 CWRS 13.5 in W.Cda is currently 0.03/bu over Mpls Mar futures. How do you know that doesn't have the FX factored into it?

4. Since Dec 30th, the average basis for #1 CWRS 13.5 has gone from 0.49/bu under to 0.03/bu over. Why? And how do you know it wasn't the FX rate that was pushing it higher?

And one more for bucket: You ignored this one before but I still want to know. You said that freight is pre-paid; what do you mean?

Here's your chance to really show me I don't know what I'm talking about - and that you do. Go for it.

[jdepape]

SASKFARMER3 says "This isn't a basis example MR Dep presented its a hedging explanation that grain companies do."

One more question for you:

What's the difference? (Hint: the basis (bid) a company comes up with is a function of how it approaches the market - that is, how it manages its risk.)

[SASKFARMER3]

Bravo! nice job.
Answer this did the Margins of Grain Companies increase dramatically in the last two years. Simple question I think.
Please enlighten US.
Its time to get ready to board a plane as this poor dumb farmer needs a little break.
Have fun!!!!!!!!!!!!!!!!!!

[jdepape]

No answers, SASKFARMER3?

One down.
Just a few more to go.