Positive sign for wheat ..

[farmaholic]

You must be , "Joe Blow" from Idaho? 😹

My name isn't Joe, I don't blow and I'm certainly not from Idaho.

I'm the Sandbox farmer from the Slum of the Ghetto.

[Kinger]

Kinger, Please do a cost scenario of reasonable price expectations and what price the futures would have to move to to be at least a break-even once the costs of the option is known.

I don't trade paper, and people say alot of times options expire worthless. I am not a fan of futures or basis first contracts.....commits you!

If cashflow is needed, why not maintain control of the grain and take a cash advance? Use a line of credit or operating loan? Unless you think there is storage risk, lack of storage, or credit is maxed out.

I believe 1% of options actually are held till they expire. Now what are options worth when they are sold is another story.

If I do a put and the market rallies $0.50/bu the option is only going to worth time value(how long it has still to expire, there is a value to this because there is still opportunity for it gain value it won't be a huge value but it isn't worthless)

I would seriously stress if you don't know much about options at least try and learn about them. Lots of Grain cos do marketing meetings where they discuss them or you could find a broker who could give you a much better description than I.

As for your comment regarding keeping the grain and sell later you listed the main reasons why. I'm sure if we polled every farmer in Canada 99.9% would say they have had to make a grain sale at some point when they didn't want too. Options are a way to make a grain sale but stay in market.

As for you dislike of futures/basis contracts i'd rather have them as an option then not too. Say a grainco comes out with a really good bid. Say it works out to a 0 basis. If you think basis isn't gonna get better but futures will a basis contract is a good strategy to consider.

Very basic cost break-even
Canola
Call $500/mt futures (at the money)
Cost is $15/mt
If futures rise $30/mt you will be over your breakeven. The delta(rate your option gains money) will get better as futures rise. But if you just assume a 0.5 it makes the math easier.

Not sure if i answered your questions or just come off like a raving lunatic. 50/50 either way

[farmaholic]

Thanks Kinger....

You came across fine but may have described me most days!

[Oliver88]

Yeah Minneapolis wheat for Spring Wheat.

You can do a contract now but attach a call for father out futures onto it. Or you can just to a straight call with a broker and sell your wheat to someone who doesn't offer options.

Technically both, but you are using an option to hopefully make more money on the overall contract.

Hope that answers our question.

Good stuff Kinger.

Can you dial in specifically on using a broker and purchasing a July 2018 call option?
What will your cost be and what rise will be required to break even?


(Every time I talk to a brokerage they mention how using Chicago wheat options would be the way to go due to cost and liquidity.....I'm just not sure about how Minne HRS high protein wheat and Chicago wheat will correlate in this environment???)

[errolanderson]

If replacing cash wheat sales with call options, Minneapolis spring wheat is very thinly traded into May/July. It may be better to replace with Dec, March calls for now as liquidity is better and there isn't so much time value in price of call premium. Time value is much more expensive than broker commission.

Note: There is a nasty little gap on December MWE wheat that fills around $6.10/bu.

[furrowtickler]

Thx for all the insight guys 👍👍

[Kinger]

Good stuff Kinger.

Can you dial in specifically on using a broker and purchasing a July 2018 call option?
What will your cost be and what rise will be required to break even?


(Every time I talk to a brokerage they mention how using Chicago wheat options would be the way to go due to cost and liquidity.....I'm just not sure about how Minne HRS high protein wheat and Chicago wheat will correlate in this environment???)

July 2018 Minneapolis Spring Wheat Futures would more proper title, cost is dependent on brokers. Some guarantee liquidity while others you have to accept that risk. Ones that guarantee liquidity cost more than those that don't. Only grainco I know that guarantees liquidity is Cargill but there options are more expensive than others. Bunge and Viterra both offer options not sure if they guarantee liquidity.

As for your broker saying to do Chicago they are part of the wheat class but Chicago, Kansas, and Minneapolis are separate for a reason. There are spreads in between them. For example on a low protein year Minneapolis will trade at higher than Kansas and Chicago as it is the higher protein class. We saw this happen just last year. If you think Minneapolis is going up then do it on that but if you think spring wheat price is going up I'd be nervous doing a call on Chicago as it is a very similar but different market.

Red spring samples are coming in low protein but durum is gonna be roughly the same as last year.

Break even would be dependent on that but for an example.
Call $5.00/bu futures
Cost $0.20/bu
Break even roughly gonna need the market to rise $0.40/bu. The rate that your call option gains value is called the delta. If you buy a call at the market the delta will be 0.5. If the market rises after you do that your delta will get better. I use 0.5 as a baseline for what I need to breakeven. Keeps things simple.