barley options

[Ron]

the wcb barley is so thinly traded for new crop should i use a dec corn put option as a hedging tool? or is it not directly tied enough to canadian feed grains (we can get corn in when barley is high but can we get barley out when corn is high). I see dec corn is at 3.00 what is the farmgate value of that? ie what should are barley really be worth?

[Ron]

Sorry sept corn is 3.00 dec is 2.95

[TOM4CWB]

Ron;

RISK in CWB Marketing, weather, BSE, CDN$ volitility all catch WCE Barley...

Watch ALL these risks... they will have a huge impact on fall 04 cash feed barley prices... when we get there!

[charliep]

Just to echo Tom4cwb, your basis risk on a corn trade is humungus. Depending on the barley situation this summer, to feed barley prices could very from $70 to $80/tonne (lots of barley, problems livestock industry and CWB feed barley is the best option/CWB PRO is reality) to $175/tonne southern Alberta (drought/western Canada is a corn importer).

From the aspect $3.00/bu corn futures is expensive (see http://futures.tradingcharts.com/chart/CN/M), selling Dec/04 futures is likely not a bad partial hedge (only deals with international feed grain direction versus the western Canadian situation). Rather than playing this as a 100 % hedge, I would have some predetermined stops in place just in case things go nuts this summer (they will in the case of a mid west drought).

I highlight where western barley futures are today and would not ignore this tool. The sad thing is this contract is not allowed to directly reflect malt and international feed barley alternatives. Wouldn't in be nice to have $3.00/bu corn reflected in new crop prices versus a CWB promise to get you $128/tonne (port) or $70 to $80/tonne back in the country?

[rain]

Charlie are you feeling feed barley could go down to $70.-$80 per tonne delivered?

[charliep]

No. I only provide because this was the signal provided by the CWB at Grain World and reconfirmed in the Producer pricing options. Maybe I am getting old and crabby but I am moving away from someone providing forecasts and instead talking about what price business can be done. When I know a price (even forward business), then I can make a decision based on my assessment of risk and market opinion.

[charliep]

Should have include profitability in the last sentence. Thinking about your question, I would put the probability of CWB forecast being the best price less than 10 % and would have to be precipited by a disaster in the Alberta cattle industry (worst than today).

[charliep]

Just checked Dec 04 CBT corn puts to see cost. Dec 04 close - $2.96 1/2.



Dec. 240 put - about 4 cents/bu. (US $200 plus commission)

Dec. 260 put - about 10 cents/bu.

Dec. 280 put - about 18 cents/bu.

The CWB feed barley PRO was based on a CBT corn price of about $2.50/bu.