"Contract squeeze worries farmers " is the WP headline

[Sodbuster]

Farmers have other alternatives to marketing and hedging their grain, rather than pricing their grain they could sign a basis contract and sell a futures contract with a commodity firm instead. Canola, oats and wheat all have a futures month specified in the contract, barley could be hedged using corn instead. It’s much easier to get out of a futures contract than a grain companies contract. Special grains are definitely a problem and should probably be not signed without a AOG.

I haven’t sold any grain I haven’t harvested for many years without AUG but have signed basis contracts ahead of time, in fact most years I usually wait till I find a good basis and price the futures last. Canola, wheat and oats I have hedged thru a broker ahead of harvest if prices are attractive.

[farmboy44]

[QUOTE=caseih;502729]

I was agreeing with bucket alluding to if producers get a bail out for things going against them this year, why shouldn’t graincos get to argue it the opposite way another year. Bad precedent

Why didn’t you get the futures price plus posted basis? Where you the fella who left his july futures unpriced until June 30? Last traded price and highest bid are two very different things when volume is gone and it’s expiry day. I explained it a few weeks ago I can did up the post.

If graincos spec for feed barley weight is 50lbs that is because they have export sales and 1cw spec is 50lbs… 303g. Domestic feedlots likely have a bit softer spec, Ill be marketing some to them if I have weight issues but again, risk is a factor I know Cargills cheque is more likely to cash than some brokers or feedlots out there

Grade risk is BRUTAL. Don’t know what our price is when we sign up because we don’t know the spread because we don’t know the quality.. played the durum game for years learned not to lock in a 1[/QUOTE


Yes I “where” the fella
I had a locked in basis , a contract that said I could sell up to the last day at 11:00 am at +62 plus posted July futures
No where did it say there had to be a buyer ?
Not my *** problem ? There was obviously a sale at that price?
They made the contract

Lol yikes. It absolutely is your problem. You made the contract specifically stating you wanted to retain ownership of the futures and only lock in the basis. So you need a buyer for the futures, not them.

I can Gaurentee your contract isn’t for the “posted July futures” it is for the highest price someone is willing to pay. I thought I explained it pretty well last time but I’ll see if a second time will get it through to you.

The one correct thing you stated is that the last trade for the July futures took place at the posted bid, let’s say it was 900 dollars. That does not mean the highest price available for you to sell the futures YOU SPECIFICALLY RETAINED OWNERSHIP OF is 900 dollars.

Once again, I’ll use a common stock example to try to simplify it for you. Your problem is you think the posted bid and the highest price available to sell at are the same thing.

If you own enbridge shares and they are currently priced at $75, that means the last transaction took place at $75. If you want to sell at $75, what happens if the highest bidder is only $74.95? Should you get $75? Now imagine that if regular stocks also could only go down $5 per day. On a day it goes down a full $5, buyers know the value is likely to keeps going down, so instead of bidding $70 they only bid 67. Same idea here. YOU still own the futures, so you are looking for a buyer, not the grain company. And unfortunately there isn’t a buyer at the price you want

I couldn’t comprehend actually pricing my grain on a basis contract and holding the futures component until the last day that contract is on the board. There would be literally next to zero volume left. Just wow. Guys don’t know what their pricing or the complexities of the market yet have the audacity to blame others for being naive

Seriously, you don’t understand this marketing tool and you should get it the hell out of your toolbox.

[the big wheel]

Bingo again.

And that is because Cargill is not speculating on the grain you sold them, whereas the feedlot could be open to unlimited risk and loss if they don't also have the cattle price and grain price locked in. Although most modern feedlots also hedge everything when possible.

Bingo bingo bingo get ready to accept what ever
Screw job goes your way because at least you ll
Get paid the screwing. Lmao

[farmboy44]

Bingo bingo bingo get ready to accept what ever
Screw job goes your way because at least you ll
Get paid the screwing. Lmao

In your area, is it actually impossible to deliver off combine in harvest without a contract? Crushers for sure I know usually can’t but with how much primary space there is now days generally someone is willing to take, although that is a luxury which you usually pay for by accepting a lower price. Just wondering if option is available elsewhere?

[jazz]

furrow, I certainly dont think the forward contracting is only on farmers shoulders, the graincos bear some blame especially this yr.

But I would just like to know what are the immediate expenses after harvest that a $1M CCGA advance wouldnt take care of for the average farm? Land and machine payments can be staggered over the yr if you ask your lender. Ours is in June after we have had 8 months to move crop. FCC and Scotia have input lines not due until Feb. BMO even had their own cash advance type program for stored crop. Sometimes I even have used my stock margin account to park expenses.

Now maybe things are different on 20,000 acre farms, but by my calculations, any combination of those programs should defer your immediate expenses way off until after xmas for most average sized growers.

But maybe I am out to lunch.

[TOM4CWB]

Very interesting thread.

Favourite quote so far “The silent majority of us don’t want to see the rest of us fund some bailout for others unfavourable decisions.” Well said.

One other well made point was that Agristability was designed to benefit accountants not farmers, for the most part this is true.

As far as the contract a farmer signs when you forward contract grain, how many on here have read them? I have to admit I have only fully read one. There was more than one interesting clause but the one that sticks out in my mind and I am paraphrasing from memory, if a producer is unable to fully deliver on the contract the grain company is entitled to the returns from the producers crop insurance. Now that was not how it was written but the fact of the matter is they are legally entitled once you sign the contract to go after your crop insurance if you don’t have the grain or the money.

There is no doubt that favourable barley prices off the combine enticed farmers to forward contract too much barley. Also no doubt that in my area at least barley certainly getting hit hard by the drought. Not really sure what the answer is. As a grain company you will look bad if farmers go bankrupt because you had them fulfill their legal obligations and in reality it is not their fault, the farmer signed on the dotted line. As for the government bailing out those farmers who over committed, not really fair to those that didn’t. One hell of a mess all around.

All AOG contracts DO Not give the grower the right to reset the price when the price is higher than the Contract price agreed on in the Contract, only to make the contact forgiveness only on the full contracted acres, If and only if; total production on all the contracted acres is less than the production sold at the present price if it is higher than the contract price in the AOG contract.

A separate contract with a purchased Call option can be bought when the grain is contracted… if the grower needs the right to reset the price to a higher level After the price has risen…
AND Normally this reset higher grain price can only be executed once at the time the grower delivery of the contracted grain is assured and complete with all grain production delivery of the contracted grain completed.

This is why it is wise for the grain grower to buy their own commodity options /futures positions in there own commodity trading account.
Accomplishing this is not inexpensive, easy, nor with out discipline and much Babysitting of the position in the futures account,
plus a whole wack of margin money coverage backing most possible positions that reasonable growers would consider decent cost effective coverage.

IE:
The purchase of a Canola Put option spread:
Buy a $900 Nov21
sell a Nov 21 $750 put,
and then sell a $1000 call to make this worth doing with a decent return and coverage.

A strong constitution is required with an understanding banker to be willing to cover the margin that arises in a commodity that can change $50/t the new daily trading limit announced last week without notice of the change…… which means $100/t range possible on a now normal trading day… which now goes from 8pm the night before on the night session… to 1:15pm when the market closes, almost 18 hours a day to babysit.

Cheers!



PS our Nexera has $10bu/ac. to$25/ac AOG coverage, therefore it is only reasonable that Growers decide if they want the grain buyer to provide the drought or hail risk management.

[furrowtickler]

furrow, I certainly dont think the forward contracting is only on farmers shoulders, the graincos bear some blame especially this yr.

But I would just like to know what are the immediate expenses after harvest that a $1M CCGA advance wouldnt take care of for the average farm? Land and machine payments can be staggered over the yr if you ask your lender. Ours is in June after we have had 8 months to move crop. FCC and Scotia have input lines not due until Feb. BMO even had their own cash advance type program for stored crop. Sometimes I even have used my stock margin account to park expenses.

Now maybe things are different on 20,000 acre farms, but by my calculations, any combination of those programs should defer your immediate expenses way off until after xmas for most average sized growers.

But maybe I am out to lunch.

Nope your not at all .
But each farm is unique
Most around here do contracts for many different reason and it’s not like they are contracting their entire production, which seems to be a false presumption here .
Utilizing programs as you mentioned is done on most farm plus contracting at least some grain for bin space and cash flow as a whole .
Over the past several years contracted grain has paid well for movement before December
Hauling every bushel in mid winter is not fun either in 30-40 below and snow
I would far rather contract 20% and move it in good weather than stuff grain bags and deal with that all winter . But each to their own
Unfortunately this year the 20% of average yield contracts are now 50-100% of production. Has not happened in 20 years unless hail wiped one out
Hind site is 20/20 .

And again over the past 10 years , especially the past few , the only grain accepted at most elevators was contracted grain
Even if you have enough bin space it is a good practice to at least move out some from each bin , or roll it if you have that luxury, before December.

[the big wheel]

All AOG contracts DO Not give the grower the right to reset the price when the price is higher than the Contract price agreed on in the Contract, only to make the contact forgiveness only on the full contracted acres, If and only if; total production on all the contracted acres is less than the production sold at the present price if it is higher than the contract price in the AOG contract.

A separate contract with a purchased Call option can be bought when the grain is contracted… if the grower needs the right to reset the price to a higher level After the price has risen…
AND Normally this reset higher grain price can only be executed once at the time the grower delivery of the contracted grain is assured and complete with all grain production delivery of the contracted grain completed.

This is why it is wise for the grain grower to buy their own commodity options /futures positions in there own commodity trading account.
Accomplishing this is not inexpensive, easy, nor with out discipline and much Babysitting of the position in the futures account,



plus a whole wack of margin money coverage backing most possible positions that reasonable growers would consider decent cost effective coverage.

IE:
The purchase of a Canola Put option spread:
Buy a $900 Nov21
sell a Nov 21 $750 put,
and then sell a $1000 call to make this worth doing with a decent return and coverage.

A strong constitution is required with an understanding banker to be willing to cover the margin that arises in a commodity that can change $50/t the new daily trading limit announced last week without notice of the change…… which means $100/t range possible on a now normal trading day… which now goes from 8pm the night before on the night session… to 1:15pm when the market closes, almost 18 hours a day to babysit.

Cheers!



PS our Nexera has $10bu/ac. to$25/ac AOG coverage, therefore it is only reasonable that Growers decide if they want the grain buyer to provide the drought or hail risk management.

Or we could just let the onus be on the buyer to buy and pay for all of this???? But no can’t do that
It would be too simple and too much less stress on the farmer.

[blackpowder]

And how much would you like to pay for that? You would never know. You can do it cheaper.

[TOM4CWB]

Or we could just let the onus be on the buyer to buy and pay for all of this???? But no can’t do that
It would be too simple and too much less stress on the farmer.

On AOG contracts the Canola buyer just may be doing something like this…

On Pulse AOG contract there is no futures on the pulses, so the most likely insurance that can be bought is rainfall insurance… which might pay back 1 year in 20.

Many Pulse buyers do back to back sales to an end user, who then takes the risk on the AOG … perhaps Bunge can do this as well on the Nexera specialty oil sales, as they would seldom actually need to exercise the AOG on 10bu/ac for the main contact months, it was only in MarchApril that the 25bu/ac AOG was available for June July August 2022 production contract deliveries.

No free ride for anyone.
Cheers!

[the big wheel]

And how much would you like to pay for that? You would never know. You can do it cheaper.

I think those people hammered by an unusual drought would
Not like to pay 8 to 1 bucks a bushel to get out of
A contract if they have no grain.

[blackpowder]

World wide commodity markets actually seem to function rather well. Chaos without them.
What you are suggesting is a risk free delivery contract option.
I am asking what you think that would cost you off the top for the buyer to do it?
Hedge able commodities only of course, you are asking everyone else in the world to function within an open outcry environment to discover price and off load risk. You will pay a premium to your obligation holder for that.
You will pay it at default or within the basis at signing. I suspect the difference high enough no one would sign one.
Too bad the CWB's books aren't available for an answer.