Canola Marketing Idol

[charliep]

As a copy cat of TV reality shows, I have the following challenge for you.

You have 100 tonnes of canola to sell between now and Oct. 31. You have to sell by November 1 because you have a $30,000 fertizer bill due. To add insult to injury, it is an interest free loan (like the good old days) until October 31 but if it isn't paid on time, you get charged 18 % interest back to when you took delivery of the fertilizer - May 1 (6 months). The penalty for leaving to November 1 is $2,700.

Just to put you at ease, you are guaranteed 100 tonnes of production/1 Canada grade. A generous elevator company/crusher has offered you a zero basis off November futures.

You can sell multiples of 10 tonnes. No replacement strategies/other contracts. When you pull the trigger, you are committed to a price. You can't sell more than a 100 tonnes.

Post your sales dates/prices. Clip and paste as you add new sales. If you don't want to post, write your decisions on a calendar and monitor that way.

Good luck with your marketing decisions.

[charliep]

Sold 30 tonnes June 20 for October delivery @ $321.80/tonne.

Value of sales to date - $9654

[charliep]

Have a corporate entry. Best Marketing Inc.

The market intelligence says that monthly prices are always higher on or around the 20 day of each month.

The marketing plan is as follows.

June 20 Sold 20 tonnes @ $321.80 total sales - $6,436

July 20

August 19

September 20

October 20

[Incognito]

Looks like you're playing with yourself again, Charlie!!!!....LOL

[melvill]

Yes, Incognito, Charlie drinks alone, too!

[charliep]

Lots of summer and fall ahead. The challenge is can you beat a marketer who has set out his pricing schedule way ahead of delivery at arbitrary intervals.

My challenge is to encourage discussion about markets in the chat room. Part of this process is too keep things interesting so people come back.

[JD4ME]

It's a fun idea and good idea Charlie you need a prize for this why don't you talk to the GM at ACPC and see what he has laying around the office for the winner. DO we start refering to Lee as Simon??

[melvill]

Hey, JD4ME, is that Simon or Simone. I can be the Simon but it'd be pretty tough for me to be Simone! ;-)

[JD4ME]

Simon as in the american version of the show, I guess if we wanted to stay Canadian content we could call you sass?

[farmers_son]

I will base my sale on an assumption that the fertilizer bill has to be paid November 1 and that credit cannot be extended beyond that date even with interest payments.

I would sell 95.7 tonnes at todays closing price of 313.50 given the scenario presented. A total amount of $30,002. That you got $321.80 is irrelevant, todays price is 313.50. There is a bill to be paid, there is no way of knowing what the price of canola is tomorrow, next week or next month so the only reasonable option is to take today’s price on sufficient quantity to pay the entire bill. Presumably there was no other way to pay that bill so there really was no choice.

Charliep, there is no logical excuse for only selling part of the production, not enough canola was sold to solve the problem you were facing. You have accomplished nothing, the problem is not solved. There is no way of knowing what tomorrows price will be and you are not in a position to speculate, yet that is what you are doing. Given an extreme situation, your farm could be placed in bankruptcy if the price of canola continued to drop without you having a solution to your dilemma by November 1. That you priced enough canola to pay 32% of your bill means does not mean you are only a little bankrupt on November 1, the bill had to be paid or else. The interest charge is not the issue, the payment date is. You are not in a financial situation that allows you to go one day without pricing enough canola to pay that entire bill, you are not in a position to speculate until it is.

My idea of good marketing is not to cleverly try to outguess the market or to sell on the 20th or whatever. It is to never get caught in a situation like presented. If you are forced to sell, then you can be forced to accept a below average price. Next year only consider purchasing the amount of fertilizer you can cash flow without sacrificing your production to pay for it or else have arrangements in place that give you more options. But with the scenario outlined, immediately pricing enough canola to ensure the entire fertilizer bill is paid is the only option.

[farmers_son]

I reread the game rules and see that I am forced to sell in multiples of 10 tonnes so should have sold all 100 tonnes, but that doesn't change the point I was trying to make that the players are not in a position to speculate so speculation is pretty much out of the question even on the 4.3 tonnes that I would not have otherwise been forced to sell.

[IAMTHEMOLE]

I PUT ON A TEXAS HEDGE AND I WENT LONG 100MT OF NOV05 CANOLA AT 301.5/MT

[crusher]

Texas hedge: will $300 Nov hold or will farmer selling start to kick the legs out? Texas hedge at $270 would have been better (or do you have 100 tonnes of that too!)
Those that have to price out July contracts this week might be a little stressed.

[IAMTHEMOLE]

UNTIL NOV 05 SOYBEANS ARE SOLIDLY CLOSED UNDER $7/BU FOR A COUPLE OF SESSIONS, $300/MT NOV05 CANOLA WILL HOLD ON A CLOSING BASIS. THATS MY STORY AND I'M STICKING TO IT.

[IAMTHEMOLE]

BLAME IT ON TEXAS. COVERED SHORT AT CLOSE . 285/MT. -$1650