FX in grain marketing

[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.

[SASKFARMER3]

Your funny now just keep telling us how well the system works in Canada.
Also a answer on how margins that once sat at 25 to 35 a ton for grain companies suddenly are in the 90 to 125 range.
Hm must be working real good not in the Basis at all.
Again in USA shit like we have in Canada would not be taken.
Answer that. Would a USA company try the same shit that's happening in Canada not get sent to Washington to explain.
But here guys like you to tell us all how well it is out in LA LA land.
Calling my flight Later.

[poorboy]

Biggest problem including Fx in basis is that it makes it very hard to lock in the futures and basis at different times.

If grain companies are taking positions in both wheat futures and cdn dollar futures there is no need to hide Fx in basis. The rest of the grain companies expenses are in Canadian dollars.

Futures prices on wheat should be converted to Canadian dollars on all quotes and contracts.

[Jay-mo]

One of my local elevators puts the FX into the basis.
I sign X-amount tonnes of cwrs #2 13.5 on basis contract at 19/t. that's roughly $.52/bushel.
The FX is now locked in.
I can watch Mpls futures as Cd.$
Today would net me around $6.30 cd.
It still doesn't separate the FX from what we consider to be "basis, but I can live with that.