New crop canola price protection

[TechAnalyst]

This was from the inflation thread but may have been overlooked by some that might be interested. Just pointing out what is possible at todays canola futures and option market values...

"If I had my way (and I know it's not possible), every producer of canola would have a tonne/ac of Nov 22 $700/t put options for $12.30/t (that it settled at on Friday). With a $10/t basis, the worst they would do is $15.37/bu ($700-12.3-10 = $677.70/t). With crop insurance coverage of say 30 bu/ac, the minimum revenue would be $461/ac (30x15.27) with $676/ac minimum out of a 44 bu/ac yield. And unlimited upside potential in revenue (if Macdon is right).

Then do what they do best, grow a good crop and see how the chips fall.

That would my idea of reducing stress, and that is what can be done with a commodity trading account…"

Food for thought for anyone so inclined.

[poorboy]

Are there any online platforms for Canadians to buy Canola options?

Had a trading account years ago and it got closed for lack of use. Real pain in the rear to get a new one set up quickly. Yet online stock trading is quick and easy.

[TechAnalyst]

I'm not aware of any online platforms that are quick and easy to set up for commodity trading, sorry.

[TOM4CWB]

I think that’s a solid plan.

For a $22.80 put you could lock in $16.19

I think the extra $10.50 has good value, definitely a personal choice.

Keep a close eye on the market and a bit better numbers might be achievable on an up day.

Anyone care to guess where price styles next year with an average or above crop? This number might have a basis on what kind of floor you’d like to put on the 2022 crop.

Contact Errol or John if you need to set up an account.
PM me if you’d like the phone number

How about call up your friendly favourite grain buyer and do a minimum price contract with an Act of God clause?

Bets are you need to sell some off the combine anyway... why not make an actual marketing plan that pays bills with actual cash flow???

Farmers are 'shell shocked' and frozen up... but how many have spent $250/ac already in prebuying 2022 crop inputs? The early bird may get the worm this year... basis levels for fall are decent... the chances of back to back 1 in 100 year droughts... is either very low... or ... the same as last year??? Grin

The highest cost crop in history is going to be seeded this spring... God give us the wisdom to listen to others in our farm teams... make sure everyone is signed off and satisfied... even if usually not a part of the decisions in farm produce marketing!

Communication folks... don't skip farm meetings... don't be in a big hurry... assumptions can be deadly to family relationships... go the extra mile... especially if 2021 was a tough year!!!

P.S. the paperwork and pledge of your fist born and wives "'dowery rights'"... will knock your socks off to set up a trading account.

[GDR]

the chances of back to back 1 in 100 year droughts... is either very low... or ... the same as last year??? Grin

Seems to be 2 yrs in a row dry and 3yrs in a row too wet with a year or 2 just right. All signs point to dry here. Another week above zero this week, very little snow.

Taking the environmental characteristics out of the equation, a specific outcome's probability does not change based on the previous outcome. Everyone always thinks flipping a coin and the first flip is heads then tails is more likely but reality is it's the same probability each time its flipped. Purely psychological nonsense. Bottom line is gotta plan for the worst and hope for the best in farming.

[AlbertaFarmer5]

Seems to be 2 yrs in a row dry and 3yrs in a row too wet with a year or 2 just right. All signs point to dry here. Another week above zero this week, very little snow.

Taking the environmental characteristics out of the equation, a specific outcome's probability does not change based on the previous outcome. Everyone always thinks flipping a coin and the first flip is heads then tails is more likely but reality is it's the same probability each time its flipped. Purely psychological nonsense. Bottom line is gotta plan for the worst and hope for the best in farming.

A year or two just right? Wow do I ever live in the wrong place. I'm still waiting for even one just right year. I'd even settle for one mediocre year.

But my observations is that adverse weather patterns seem to go in groups of 3 years. Often overlapping each other and attacking us at different times in the growing season.

I

[TechAnalyst]

P.S. the paperwork and pledge of your fist born and wives "'dowery rights'"... will knock your socks off to set up a trading account.

You really are letting '21 keep you from having an open mind.

Like JWAB said, it's just about risk management.

The paperwork of setting up an account can take a few hours of your time but considering what's at stake, it's worth it in my opinion.

As for pledges, I'm not sure who you deal with but just agreeing to cover your losses is all that is asked for in any documents I've seen.

[jamesb]

Regarding setting up trading account, there is lots of paper work but once its done then your good. The broker will do the leg work , you just have to provide the information. Lots of signing. Find a broker that doesn't expect you to do a lot of trading.

[shtferbrains]

Markets open strong this am.

[TOM4CWB]

[QUOTE=TechAnalyst; “You really are letting '21 keep you from having an open mind.”

Techa you totally missed the point of my risk management strategy as I have discussed here and in the inflation thread.

My Canola buyer is happy to add any option to any Canola contract we have done with them.

So… as I said earlier:
Sell the deferred Canola and buy a call option?
Just buy a out of the money $700 put against fall 22 canola delivery?

Believe me it is wild to conform to all the regulations and registrations a futures trading account requires now… let alone the bank line of credit for any decent volume 200,000$ minimum is needed…if futures trading is involved…

It is far better to attach an option to a sales contract that already has a decent basis and delivery period that a farmer already needs to be putting in place for the fall of 2022 for cash flow and loan payments.

Cheers and blessings!

[TechAnalyst]

We certainly are having a hard time communicating.

I am in no way trying to discourage anyone from contracting what they feel comfortable in doing so (new crop sales). And I do think buying a call at the right time is wise to protect against a 2021 repeat on what they do sell.

It is the portion of production that one is not willing or able to forward sell due to production risk that I have suggested be covered by purchasing put options.

I don't know of grain buyers willing to buy puts for producers with no delivery strings attached but good on them if they exist.

As far as the $200k, you know that's not required for the option strategies I've suggested.

In your example of 500t at $18, it would have been a $9,500 outlay (plus commission). That's it, that's all. Then hope they expire worthless so you get a higher than minimum price.

[TOM4CWB]

[QUOTE=TOM4CWB;529338][QUOTE=TechAnalyst; “You really are letting '21 keep you from having an open mind.”

Techa you totally missed the point of my risk management strategy as I have discussed here and in the inflation thread.

My Canola buyer is happy to add any option to any Canola contract we have done with them.

So… as I said earlier:
Sell the deferred Canola and buy a call option?
Just buy a out of the money $700 put against fall 22 canola delivery?

Believe me it is wild to conform to all the regulations and registrations a futures trading account requires now… let alone the bank line of credit for any decent volume 200,000$ minimum is needed…if futures trading is involved…

It is far better to attach an option to a sales contract that already has a decent basis and delivery period that a farmer already needs to be putting in place for the fall of 2022 for cash flow and loan payments.

Cheers and blessings![/QUOTE]

I am trying to get AFSC 2022 grain insurance prices out of them so know what values will be embedded in our crop insurance and costs also would be helpful!
The answer I got was April which I know is wrong…

So going after the academic vegetation is futile… go up the chain!!!!

Cheers

[Oliver88]

[QUOTE=TOM4CWB;529353]

I am trying to get AFSC 2022 grain insurance prices out of them so know what values will be embedded in our crop insurance and costs also would be helpful!
The answer I got was April which I know is wrong…

So going after the academic vegetation is futile… go up the chain!!!!

Cheers

Manitoba released values in January. Saskatchewan Ag says they likely will mid February.

[TOM4CWB]

[QUOTE=jwab;

I’m working with Bunge today they are actively putting options together for contracted fall delivery Canola.

I can buy any Nov22 calls or puts against contracted sales done right now .

With the shortage of Canola in western Canada it is really hard to imagine that our Canola fall prices will disintegrate before spring seeding at least… exports are cut off… stocks must be rebuilt…. Mid summer is likely to be the earliest a large scale downdraft will occur in the Canola market… especially now with the South American Soy production problems.

Options against sales should be held to expiration, since Bunge tells me they will write options to cover spring of 2023 canola sales… hands down doing this risk management through contacted 2022-23 canola sales is very attractive and cost effective.

Relationships with Canola buyers of trust and integrity will be the prime factor in doing risk management of grain sales in 2022-23.

Cheers! We are blessed to be in Canada!!!

[Sodbuster]

It’s much easier to get out of a contract using paper than it will be trying to get out of a contract with a grain company. You still might have a loss but you can get out of it sooner if you feel you can’t produce the tonnes you have contracted. I don’t sign contracts with grain buyers until I have it in the bin, but will do options or hold a position with a commodity broker before I harvest the crop.