Market Volatilty

[charliep]

What are your thoughts about market volatility these days and impact on your business? Lots of articles about this in newsletters this week (Pro Farmer US, Agriweek, Ken Ball/Union Security).

The issues raised in the threads to date have been about price direction. One of processes every night is to take the direction/magnitude of the daily futures market closes and multiply it by the contract volumes. What scares the tar out me as a former micro speculator (one contract at a time) is the daily volatility in some contracts is more than I make every month. If you take this to a farmer hedger (or perhaps speculator) level, you have to be prepared with significant amounts of margin money. Take this to a grain company/processor and the numbers get even scarier. This also applies to the CWB.

Realize this will bring out lots of negative comments from the fringes but thought I would try to bring forward as a discussion issue for the middle of the road farmer who is looking at alternatives to help them manage the risk/profitability of their business. The volatility is making this a challenge but maybe at today's prices it doesn't matter.

[parsley]

A voice from the organic fringe. LOL

Production contracting being completed in organics. Some typical offers from companies:

HRSW #2 or better plus additional specs, $20.00 per bushel FOB farm.

Brown flax and specs $30.24/bu.(Brown flax last year was contracted at approx. 25.00 per bushel).

Golden Flax?...Don't even ask.

The question to ask is this:

"At what price can your farm make money and your banker is satisfied?"

NOT

"What does the neighbor get?"

Parsley

[charliep]

The easiest way to manage risk (at least price) is for a buyer and seller to agree to a price that meets their needs. But then we would be talking about marketing a product versus selling a commodity.

Maybe the title of this chat area explains some of our confusion. Commodity Marketing is a oxymoron similar to military intelligence, government service, etc.

[Zaphod]

Oh Charlie, you're going to get yourself in trouble with the boss yet.

[parsley]

Organics pay these buyback prices:

2007-08 OFSC rates (per tonne)


Japan EU/UK U.S. Canada

Wheat $5.20 $3.71 $3.38 $3.38

Durum $15.02 $3.38 $3.38 $3.38

Barley $3.38 $3.38 $3.83 $3.83

Desgnted $3.38 $3.38 $3.83 $3.83 bly

Who knows what they will be next year?

So why don't conventional growers insist upon the same?

Or is that too extreme a request for the whipped to make, especially being suggested by such a fringer?

Parsley

[parsley]

Cotrrection:

Barley $3.38 $3.38 $3.38 $3.38
Sorry.

Parsley

[TOM4CWB]

Parsley,

That is exactly what I asked in Master Chairman Ken Ritters meeting in Provost.

Why, on the 26th of February... when Organic Growers were required to pay $3.38/t... was I required to pay over $500/t for my wheat Export Licence from the CWB.

Answer was;... because we must obey the law...

[TOM4CWB]

Parsley,

Interesting... I heard that Viterra was offering over $25/bu for wheat a few weeks back... amazing what an export license policy change can do!

[parsley]

Viterra ..offering .. $25/bu ?

What do you mean export license policy change? Explain that, will you?

A neighbour did a buyback reecently and paid app $12.00/bu buyback.

I wonder if the CWB asked 24.50/bu buyback, if Western farmers would continue to wring their hands and moan in their sleep.

Parsley

[TOM4CWB]

Parsley,

I assumed you knew I was talking about Organic Wheat...

[TOM4CWB]

Charlie,

On your question... Grain price volatility... is directly purportional to WEATHER volatility.

SO

Where are we going with the weather... over the next 6 months?

I met with E. Ray Garnett, B.A., M.Sc. in Winnipeg at Grainworld.

Ray asked the weather folks... some VERY hard questions... that they did not answer well...

Ray has some very interesting ideas... on models to better reveal future weather patterns...

Perhaps a few invested $ in people who ask HARD questions... would be a smart investment?

http://www.members.shaw.ca/agroclime/

Check it out!

[craig]

Charlie
Trying to stick to your orginal question. This market is showing us what we have seen in past. Good prices over a long period of time brings upon complaceny. Then we get a wake up call when the market makes a big drop. At times like this I find it of value to go back to gross or net values per acre. This brings us some reality to the situation. If a gross value drop of over $200.00 per acre in a week is not a wake uo call I'm not sure what is. Gross and net value returns per acre are also a good indication of where seeded acres will tend to go. Right now in our area barley returns stink in realation to wheat. With the fund companies so heavily in the market I would suggest that prudent market strategy is to take the money and run while you can. There are to many factors besides market fundamentals at play in this market.