AU's maximizer contracts

[rook]

Does anyone have any experience with maximizer contracts from AU? I think canola's going up, yet I want to move some of the tougher stuff rather than store it.

Premium to pay for Jul06 is $22/t, May $19/t, Mar $16.50/t.

Any of you experienced marketers have any advice?

[melvill]

rook, basically what any contract like the AU Maximizer contract does is allow you to buy price insurance. You pay $22/t for the right to be paid for any cash price increase - any combination of futures and basis - that is available between the day you deliver the grain and, in this case, July '06. It doesn't mean that you get paid for the highest price that happens between now and July - you have to pick a price.

Picking the price is the trick. My experience is that producers who use these contracts have a very hard time with disciplining themselves during a rally to phone the grainco and say 'I'm picking today's price for my Maximizer'. They're always afraid that, on days when the price is rising, the price will be higher tomorrow. Or, on days when the price is falling, they're afraid it might go up again tomorrow. The result is they often wait until the last minute to lock in the price or don't do anything at all.

You need to know if this price-increase-insurance you are paying $22 for covers only increases in futures or is it for an increase in the cash price. Be careful if it's a cash price - a nice increase in futures can be eaten up by a weakening of the basis.

One more thing. Every producer I talk to these days is bullish canola prices. $22/t or 50 cents/bu is a lot to pay for a bullish outlook.

[nw9flynn]

I agree with Melvill,

$22/tonne is very expensive. I honestly do not think that the market has that much of a rally in it, or if it does not much more than $22.

Max I think that if you see a $10-15/tonne rally, make some sales.

[rook]

Thanks for your comments.

To answer your question melville it is only the futures you have to watch.

[charliep]

Have had calls myself on this program.

Highlighting Lee points, watch your basis - you will have locked the basis level on the day you signed the contract so be prepared to live with it.

I also note the carry in the market - $33.50/tonne yesterday between November and July. I have a fear that this is a market that could be close to a bottom but will loose carry through the winter - that is, deferred months will slip lower.

I also note this strategy involves doing everything on the same day. I like the philosophy (realizing we have left grain marketing behind and are now talking speculation) of buying cheap and selling expensive. That moves things into a futures/options strategy.