Contracting ideas.

[FarmRanger]

Tom, I’m not arguing that production risk mitigation isn’t good for farmers who would be willing to pay for it. If you get a drought/hailstorm/herd of rampaging rabbits, that destroys your crop, you would be off the hook, which may be a good thing, but that won’t help fill a boatload of canola.

[Hopperbin]

Farm Ranger I believe the act of God clause cost is the cost to back up the futures position with a call option, so on regular canola would it not provide product security. I am not sure if I am right, someone can correct me if I am not.

[FarmRanger]

Hopperbin, if I’m not mistaken, the act of god clause that Tom was referring to was the ability of a farmer to be able to contract his crop, and in the event of a crop failure, not be on the hook for delivering product he doesn’t have. You are right that futures market options would indeed be one way of offsetting monetary penalties from non-performance of the contract. This would help the buyer who would use that money to buy higher priced product in the event of a shortage. What happens if too many of our bins were empty, as in the 2002 drought? There’s going to be somebody who doesn‘t get enough product at any price.

While insuring monetarily against production shortfalls, options may not be able to ensure physical supply, and if I’m understanding correctly, that’s what the original question was about.

Companies might be able to reduce production risk (contracting with irrigators for example), but what else will actually ensure supply like paying someone to actually keep canola that’s already in the bin until it’s needed? Keeping inventory wouldn’t be cheap, which is why my first post asked how much would a buyer be willing to pay to ensure supply.

[just_wondering]

the cash advance would have to be used to guarantee production essentially buy the crop before being planted use the crop as collateral and security.
I don't know what an appropriate # would be , it would likely depend on your area I could likely guarantee 8-10 bu acre other areas more/less
As for Terra fuels I agree on your math that's why I never contracted with them Had they gotten too >$5.00 last Jan. I might have.
This year might have to be $6-7 but we'll see.

[TOM4CWB]

Farmranger,

Bunge used a minimum price contract on HEAR specialty oil Canola. They were responsible to contract to meet needs... and a buffer in case of a problem. They got all they needed, and more.

Minimum price production contracts work to attract acres.

I buy a call against the production contract... and am set.

[Hopperbin]

Something new to think about that us farmers may not be used to. How about offering a bonus based on profit. Like a profit sharing. How about a free trip to Japan???? Not many of us have been there, could increase tourism there. You mention the price is not necessarily an issue so hmmm, could get interesting. Is there a Japan air lines? How about Japan air miles. Toyota Tundra credit, Japan train miles. A lot of Japanese go to the Phillippines just for a game of golf, lets go man.

[Hopperbin]

Ok back to the real world. FarmRanger paying someone to hold canola would be much the same as a cash advance. By giving a cash advance or partial payment on a commodity they will in fact have ownership of that commodity. I believe that is a good idea. Not sure how much Terra is paying if any of the cost of the cash advance program they had. There was a deduction on the price delivered for cost of the cash advance. I believe Japan has low borrowing rates, so maybe they could absorb the cost of the cash advance along with a basis contract program for each month of the year.

[TOM4CWB]

Hopper,

Bunge just did a program on HEAR.

$30/t to hold over an extra year... They themselves paid 75% cash up front... in an interest free advance.

The carry in the futures has paid us on our NEXERA to hold it... but the cash advance under the new program scares us. We are told we can't pay it back cash like previous programs allowed. SO we paid it off. With Fert. so costly... we are stuck way into our credit lines to prebuy.

I guess we should take a close inventory and retake another advance and pay admin fee again... there needs to be a better way. We started paying off the spring advance as required last fall... and finished it off as required by the contract before Jan. 1.

We need to put together a better system... that puts cash repayment back as it was previously before this new program tightened up everything.
Frustrating.