Mind the gaps boys

[macdon02]

Every grain but canola gapped higher but canola. Next three days are important if they dont fill we'll have higher prices coming. US$ had a nasty drop on the fed comments this afternoon. Pay attention !!

[charliep]

Just curious from a strategy standpoint what western Canadian farmers can do. Maybe I am misinterpreting but a re-jigging of world currencies will have an impact on our prices. A weaker US buck would make US based futures move higher other things equal.

[ado089]

Don't worry, basis levels will be adjusted accordingly.

[charliep]

One newsletter I get suggested considering starting to build up an inventory calls (buy side). The objective is to have a lottery ticket if weather impacts crop conditions across the US midwest and potentially provide some support to decisions to forward price this spring (ie. more confidence pricing knowing you have an insurance policy in your pocket if prices rally because of some unforseen factor today). You can add in thoughts/strategies around the US dollar.

[errolanderson]

Charlie . . . lottery ticket??

This is a solid farm management strategy replacing cash grain sales with call options. In fact, this is far less risky than storing grain unpriced. The grower is only exposed to the value or premium of the call option, not to the entire bin of unpriced grain that is also susceptible to grade changes.

[mcdon]

Errol.

Once producers replace cash sales with calls they are crossing the line from hedges to speculators (IMO). That is not to say options should not be used as a marketing strategy, but selling calls and buying puts to protect the price of inventory are tools that could be used for hedgers. Don't mean to split hairs.

[errolanderson]

macdon . . . storing cash grain is not speculating?

If growers had sold cash grain off-combine and replaced with calls they are at risk of losing only the call premium, not the entire drop in crop values. Also, there would be a large cashflow injection plus more limited storage and grade risk.

Wheat market is a classic example

[charliep]

Lots of marketing tools that are available to farmers. Perhaps the first question is what the farmer wants to accomplish in their market/business plan and from there, what is keeping them awake at night with regards to risk. My definition of risk is not only protecting against pain but also realizing the is a cost (premium in the case of an option/SPE in Alberta) or giving up potential gains (DDC/futures).

Once a farmer knows what they want to accomplish, picking the best tool gets easy.

A long ways off topic from the start of mind the gaps. Nice to have a market conversation going.

[mcdon]

Errol,

storing grain is speculating only if it is not hedged (futures, options,basis levels). For me, buying call options to replace cash sales is often an attempt to capture lost opportunity. I suggest being proactive and using derivatives to protect against a drop in prices. The oil sector is a perfect example. Unhedged oil companies are facing lost opportunities and potential bankruptcies. Oil companies buying calls at this point risk throwing good money after bad, not an enviable position. Just a matter of perspective.

[errolanderson]

My point in this discussion is that the use of options whether puts or calls are an important tool in the marketing toolbox for risk management. It offers the grower more flexibility.

They are no lottery ticket, if used within a farm management program. And put options (for example) can offer a much higher floor price to growers than government programs.

[bucket]

When you guys talk of selling off the combine, you mean delivering right?

That's when it all gets too funny.

Maybe some haven't noticed the lack of delivery opportunities.

I would be happy to spot price my grain and move On.

[Hopalong]

Spot price your grain and move on whatever the price?
I think not.

[furrowtickler]

Half way through harvest all deliveries were non existant anywhere around here - thus zero ability to turn grain into cash .
Sounds like the right thing to do though from an office .

[bucket]

Yep at the price I think is fair.

6.50 off the combine to local elevator would be fine for my wheat. But delivering there isn't really an option as they are so far behind.

And now they basically only handle canola and red lentils.

So I look further out to other points and make deals. Flat price.

I know I should be pricing the so called positive basis but one side of my brain couldn't let the fx thing go. Bad I know. But I am the one to blame. No one else.

Deliveries and movement that's someone else's responsibility. And excuses.

[bucket]

Besides i grow flax peas durum. There is no futures.