CWB vs Dollar Cost Averaging

[wd9]

Ok so its month 3. Around the middle of
the month one twelfth of the crop is
sold for local cash price of canola.

So far all three at ADM Lloydminster:

August 14.50 immediate delivery
Sept 14.65 sold for nov delivery
Oct 14.25 sold for nov delivery

[SASKFARMER3]

I'd say you'll kick their ass.

[bucket]

If you sold equal amounts, your average is 637.5 per tonne. Currently 17 over the cwb canola PRO.

[bucket]

OOOPS. I made a mistake!!!

You are actually under the CWB PRO of 640.

620 was ringing in my head for their PRO.

So you are 3 bucks a tonne under but you are not waiting for the rest.

I'd say its a wash currently.

[LWeber]

$640 per tonne (basis in-store Vancouver or Thunder Bay).

So he is ahead of them...

[bucket]

That's what I was missing. Thank you Mr. Weber.

[jdepape]

Strong basis and inverted futures = sell now, don't
store.
Tight ending stocks suggest bigger inverses are
yet to come.
But I like the idea of crop year averaging.

So...

Sell all your cash now, replace with an equal
amount of Jan futures.  

Every month, sell 1/12th as you have been, only
now you're selling out your futures position.

Before you get to Jan, sell all your Jan and
replace with Mar (sell the spread)

Continue selling your Mar at the same pace.
Sometime before Mar, roll what's left into the May.

Repeat as necessary.

Every time you roll a long position into the next
futures month in an inverted market, you replace
your futures ownership with cheaper futures
ownership.  And with the tight stocks we're
seeing, I'm thinking these inverses will likely get
much bigger.  Your risk is that they go to a carry.  
In this market, the odds of that are pretty small.

You could pick up an extra buck a bushel without
breaking a sweat - and if things go well, it'll be
much more than that. 

[TOM4CWB]

Dear John,

Why fight the market?

Wouldn't it be best to roll the amount to sell into the proper futures month... WITH the proper volume... RIGHT NOW?

In canola I really doubt your assumption that the inverse to July 13 will get greater... I bet it will get less as time goes by.

I just don't think there is that much 'weak owned' Canola left to sell to the 2012-13 market. Cash flow has been met. Sales will require big premiums to pry open the bin door. Not even that many bags to clean up!!!

Sell now... speculate on NEXT years crop!!! Tax grain can take the losses... they can afford to take half and still not feel too bad!

Grin!

Cheers!

[jdepape]

Tom: 

The strategy I laid out doesn't " fight" the market
at all - not sure what you mean by that.

You suggest that sales will require big premiums
to argue why spreads won't invert further - yet
that's a very sound argument to SUPPORT the
idea that spreads will invert.

What market factors will make spreads go to a
carry?  

What drives spreads to a carry is the same thing
that drives basis levels lower (lower price) - ample
stocks.  Tight stocks do the same - raise price
through higher basis (higher price) and higher
nearby price relative to the deferred (inverses).
 
You may be right about where spreads are going -
but we will need a buildup of free stocks in the
system to do it.  Convince me that will happen
and I will agree with you.

[wd9]

John, good strategy. But this is a
simple, real simple dollar cost average
over 12 months without the requirement
for a broker, marketing experience,
reading the markets etc. Just sell
1/12th of the crop in the middle ish of
the month.

Mainly just a demonstration of how much
the CWB sucks and that we not fear an
open market. Probably anyways, time will
tell however.

[jdepape]

wd9 - I appreciate the exercise and understand
your issues around my strategy.

You want to compare your simple average with
the CWB's performance - consider the fact that
the "enhancements" in my strategy could add as
much as $1.00/bu to the bottom line (in my view,
this is on the light side). And the CWB has the
freedom and the capability to do it. Even with this
"enhancement" in their tool kit, your simple
average will still certainly beat them.

Any thoughts on doing the same on wheat?

[TOM4CWB]

Dear John,

My logic is simple. My gut feeling is that by the end of April the inverse in July 13 will be at that time a carry. If a true 'pool' average is the aim... then best establish the correct sales for each period now. LESS risk in my books.

The futures will rise vs soy vs palm... the basis will only absorb so much of the volatility as this market is traded internationally.

Just a thought.

Cheers

[wd9]

I really was considering for wheat, just
lazy i guess LOL.