Kansas wheat breaking dormancy early/frost damage potential

[melvill]

I think I said it in one of the other threads. I'd be temped to sell U.S. wheat futures - Minnie of K.C. - as a hedge for, say, 20 to 25% of my expected crop. If U.S. futures keep going up I'd sell more and, if I could, I'd seed more. Quite frankly, I wouldn't be seriously worried about margin calls at this point. You may get some but if you were to buy back the futures (lift your hedge) and sell U.S. wheat futures, in Canuck Bucks, through the CWB basis contract program, you wouldn't be holding those futures very long anyway.

One other thing. Margin calls aren't lost money. Yes, they are a cash flow issue but any producer who doesn't want to ever experience any margin calls, should never have a futures account.

I suppose you could buy a call to cover margin calls but, gee, to buy (pay for) insurance to cover margin calls, I'm not keen on it.

[TOM4CWB]

Lee,

Buying an out of the money put... solves the problem.

No margin calls. Hedge that can be held short term... at a low cost.

I did what you are talking about in 1996... but sold call options to pay for my puts.


Was mighty stressful... I wouldn't doubt the ten year cycle is right on track!

[melvill]

tom4cwb, I don't disagree with you that an out-of-the-money put will help protect against some of the possible slide downward of U.S. wheat futures. They work pretty well if held for a short time before the time value erodes. Put options only protect against part of the downward slide. Some of my farmer-clients don't like them for that reason.

I also am sympathetic with the potential stress of sell calls to cover part of the cost of the puts. Sometimes I think brokers encourage people to buy the call at a strike price that is too close to the strike price of the put they're buying.