Marketing lessons

[gustgd]

Well we're all getting ready for another season
and I was thinking about lessons learned from the
past year. What are others thinking about new
crop prices?
#2 13px Durum can be locked in at $7.75
delivered to Davidson. Oct delivery

#2 SWSW can be locked in at $5.54 Davidson or
$5.75 Belle Plaine off the combine

Yellow peas $8.00

Red lentils .21c

Canola $12.50

As I see it with an average crop I can make some
margin at these prices. Canola and SWS the only
crops of this basket that have really spiked in this
last year of record drought.

Lentils are back in the rotation after nearly being
dropped. .18c doesn't get them planted and I
believe the disaster crop of 2011 has even fed to
pigs and bled out of the system.

How did cereal marketing go this year? I found
very little difference in grade px and dollars
recieved.
People are having a tough time dropping #1 13 in
the pit and getting the same as the cattle guys are
paying. Is this a year to store that px. Would you
do that in a year with prices so historically high?

Thoughts

[hobbyfrmr]

When the industry is handing out pie....take a
piece.

I don't think the us drought is over, but the
industry and rhetoric will say/do anything to
suppress prices moving forward.
Only grain farmers like high grain prices.

I cannot afford to store protein for months. I am
not disagreeing with the strategy, I just need
money all the time.

[Choice2U]

Yellow Peas - locked in 13 bu/ac at $7.75/bu to generate cash flow off the combine. Rest will be sold in fall/winter as cash needed.
Canola - 15% sold at $12.10 (pulled the plug to early), 15% protected by a Nov $540 put for $12/mt. Next target is $560 put for $10. Hope to get 75% covered by puts.
HRSW - 0% sold because market is not inverted and US is far from over their drought. Rolling the dice on 100% of this production.

[errolanderson]

Price risk management is just good
business sense. Growers have had
tremendous opportunities to lock up
excellent profits in the new crop year.

Marketing never ends locking profitable
prices. Say you fix wheat prices for the
new crop and then the U.S. does have
another drought and the futures explode
higher . . . consider scaling in put
options into this price inferno. Futures
rallies do not hold for the long haul
(as we have all witnessed). Have seen
tremendous gains by growers scaling in
puts into an overheated market. If the
U.S. gets normal weather, you will be
damn glad you forward priced.

[bucket]

Have been reading about ethanol plants in the states switching to wheat and some feed mills bidding as well.

A couple of comments with that were:

1. Wheat is cheaper than corn(rare that happens)

2. They can't find corn so they have to feed something.

3. If they switch to wheat and stay with it for an extended period, there won't be much wheat left either.

My take is the US is emptying the pipeline of corn, and working on the wheat pipeline as well.

Why isn't the price of corn going up? The SA harvest is currently keeping a lid on prices and wheat is is the substitute currently.

[btjadenlepp]

I'm not going to argue with anyone about
the outlook but you have to respect that
the U.S. winter wheat harvest is not
that far away, and soon after it will
come the EU/FSU harvest, we are seeing a
massive Indian wheat harvest right
around the corner while still working
through the big Australian harvest. This
is what makes the wheat market very
different from corn, soybeans, canola,
peas, oats, etc. - you can run supplies
down, but it's never very long before
the next crop comes off.

Interesting price spread in southern MB
today: even money for new-crop spring
and winter wheat.

I would like to understand better the
line of reasoning to not sell new-crop
because the market's not inverted. Not
arguing it, just curious.

Final point - to the poster who
suggested the world is going to run
wheat supplies right in substitution for
corn: where do you get your global wheat
s/d data from?

www.farmlinksolutions.ca

[Mufferaw]

If you know what your costs are. You never go broke taking a profit. Farming or investing.

[errolanderson]

Brenda . . . another change in global
wheat pricing dynamics is that the U.S. no
longer controls the global wheat price.
Asia and the Black Sea now have the major
influence.

[bucket]

btjadenlepp

I suspect that question was for me:

"Final point - to the poster who
suggested the world is going to run
wheat supplies right in substitution for
corn: where do you get your global wheat
s/d data from? "

Maybe you could clarify the question but my take on it - if you get cows pigs and chicken eating wheat you will go through a lot of supplies quickly. That won't show up for a couple of months on any report.

In reading about texas feedlots they are down to a 10 percent corn ration because they can't find corn. I realize the cow herd is down in the states but the herd that is left is eating grain because there are no pastures.

[btjadenlepp]

This idea that the latest USDA figures
aren't fully taking into account the
current demand situation for wheat is a
matter of some debate right now amongst
traders and analysts. Whether or not
it's enough to tighten the supply of
wheat to price supportive levels depends
on what volumes are actually being
consumed. I'd like to be able to better
quantify 'lots' but am having a hard
time finding credible numerical
estimates.

[bucket]

Farmers selling to feedlots is a hard number to quantify.

Yep sure is, but if the estimate is the feedlot is on a wheat diet with 20000 head eating 5lbs of wheat per day per animal, the equation gets a little easier. Maybe, maybe not.

But those cummulative sales take time to be accounted for in government reports. As opposed to large sales that have to be reported at the end of the week or end of day if the sale is large enough. I don't put alot of stock in any government report, especially in Canada.

If statscan finds 500,000 plus tonnes of canola this august when the exporters and crushers report to the CGC, then its really not an entity (statscan) worth having when you also consider they can fudge the numbers for two years after the fact.

Grainco's are currently using basis to find grain, that is a bullish event. Maybe, maybe not.

[btjadenlepp]

Yeah, I said the same thing about the
strength in the basis being bullish to
futures... about 3 weeks ago. Not
feeling so smart about that call right
now. I guess we're learning what the
actual correlation is between Prairie
cash and Mpls futures.

Changing the subject here but if any
grain companies are reading, could you
please stop harassing my clients to take
out wheat basis contracts? I get that
you're short but it's shitty risk
management in this environment and we
are all very tired of answering the same
questions over and over: 'should I take
this wheat basis? The elevator tells me
it's a great deal'.

Sure it's a very sexy basis, way to go.
But the downside in the flat price is
pretty limited here with feed buyers
paying a premium to your milling wheat
bids pretty much everywhere.

Unless of course you had an open basis
contract to U.S. futures, then you'd
have tonnes of downside price risk.

[bucket]

Why are they using basis to attract wheat instead of futures?

A premium for offer (as Viterra calls it ) gets there "fix" now without having to tell anyone they are in fact short.

You deliver and their need goes away.

[bucket]

Besides if my HRSW isn't worth more than feeding it to cows, why am I growing it?

Might as well switch to ethanol wheat.

This won't end well for end users that refuse to pay for quality.

I realize the graincos can switch stock to put the right product at the feed mill or feedlot, and use the quality grain for other sales but eventually that will catch up to them.

Saves them some money now, but when they finally realize the quality wheat is gone, things might move up dramatically. Maybe, maybe not.

[danpenner]

if we end up with normal growing season arent the winter wheat (lower quality wheats)going to drop in value sooner than the cwrs wheats, normal years tend to put premeums back into high quality crops
to me that screams of better basis levels to come on high quality wheats given a crop year with no real production issues