Neville Nankivell

[chaffmeister]

Agstar77:

1. Options don’t lock in a value. (Remember, they allow you to gain when the market goes your way and protects you when its not. No “locking in” here.)
2. You’re right – options “in themselves” do not create anything. It’s using them that does that. (Similarly, a combine doesn’t create anything – but using it does.)
3. Many, many option traders make money. (Not sure why this is an issue…)
4. Exchanges don’t sell any options. Option traders sell options.

Assume two business operators (we’ll call them farmers) have the same size operation, same cost structure, same customer base, same risks. Business Operator A does no price risk management (no futures, no options). Business Operator B manages his price risk with futures (forward contracts like DDCs) and options (minimum price contracts).

Over the years, Business Operator A has wild swings in revenue – but mostly he’s struggling because the good years – although very good – are not enough to make up for the bad years – which can be very bad (and beyond his control).

Business Operator B, because he looks at his risk management tools and techniques as an integral part of his operation, has not had the wild swings in revenue that Operator A has had. Rather, he has had stable (perhaps even boring) revenue streams – but no big losses due to having to accept ridiculously poor prices. He’s been able to put together a string of reasonable years and is in a much more comfortable spot that Operator A.

Fiction? I think we all know people that fit into both these categories – I know I do. Although their size, risk, etc may not be exactly the same, the big difference between operators is in the way they approach their business. I’m not trying to say risk management is the only saviour of the farm – I’m saying it is part of a professional farming culture.

Bottom line: those that manage both expenses AND revenues do better (create more wealth) than those that only manage expenses (and certainly more than those that manage neither expenses nor revenues). Options (and other tools) are excellent tools to manage revenues.

[AdamSmith]

Question to Agstar77;

Would you accept as a trade off , letting the CWB keep exclusive single desk authority of CWRS wheat only. All barley is removed from it’s exclusive jurisdiction, and all Non CWRS wheats are removed from CWB exclusive jurisdiction? This would include all winter wheat, cps wheat, durum and white wheat. No one gets 100% of what they want, but each get something that they do want. Of course the cwb could market these grains as well, only it would be voluntary producer participation.

Or is it still all or nothing, the WWII Japanese philosophy of better to kill yourself than surrender to the enemy?

[agstar77]

The problem with barley is it basically a feed grain outside of malt . We are shipping a low value high frt cost item to international markets. The value in barley or any feed grain is to use it locally in the feed market. I really don't think there is any great potential to export barley as a feed to compete against corn. We don't grow barley for the reason the returns aren't there. Since the CWB is basically export oriented I can see them getting out of the barley picture.

[TOM4CWB]

Agstar77

On Options;

Do you buy insurance for your vehicles and equipment?

If you do, this is no different than buying an option on currency... covering whatever direction (CDN$) in movement you need the coverage (Up or DOwn).

Exactly what the underwriters do on your farm insurance policy.

Options are simply insurance policies sold to cover market risk.

[agstar77]

Insurance and options are normally both used to prevent catastrophic loss. If you are lucky or good you might make money on options, but the sure thing is they are both a cost of doing business. I have no problem with someone buying puts or calls to protect their price, however anymore is speculating so why farm if you can make money speculating? It is very hard to time the market, if you can ,set up a brokerage. I don't need the work or the stress.

[chaffmeister]

Agstar77:

Funny how folklore works. Here are some FACTS in chronological order:

Prairie Pasta’s plans to “move up the food chain” was, very early on, frustrated by the CWB when the CWB would not allow these producers to process their own durum. This feature was felt by Prairie Pasta to be a key factor in getting farmer-investors. Even with the CWB’s refusal, the directors of Prairie Pasta continued to try to get this idea rolling.

Prairie Pasta’s subsequent business plan was aimed at buying existing capacity rather than building new (there were 3 facilities being considered). The board of PPP at the time decided that this concept (buying rather than building) when combined with no CWB support, would be too tough to sell to farmer-investors – so they scrapped the idea of buying.

Later, Prairie Pasta worked out a deal with Dakota Growers in Carrington, ND to allow Prairie Pasta to buy shares in Dakota Growers which would allow Prairie Pasta members to deliver durum to Carrington. At first, the CWB agreed to negotiate with Prairie Pasta and seemed to work out the details for Prairie Pasta investors to sell to Dakota Growers. Then, at the last minute, the CWB reneged on the deal.

So, let’s see. You have 600 Western Canadian durum producers (some figured the number would have been in the thousands if the CWB had stepped aside) anxious to invest in a farmer-owned durum mill and pasta plant. The biggest obstacle has been the CWB. If the CWB had simply allowed them to process their own durum, they would have raised more than enough money and then likely would have bought three facilities and would be processing durum as we speak.

Anyone who says the CWB was not a factor is simply ill-informed.

[parsley]

agstar77,

Your statement:

"There were no pasta growers , just durum growers."

typifies the rot in the thinking at the CWB. I'm sure all Wheat Boarders would like to forget about the term "pasta growers" becuase it represents what Saskatchewan could have created. Could have been. Value-added is lost, while Larry Hill sits in the heart of durum country, satisfied that he is championing the firesale shipment of boatloads of durum, (some rejected in Italy)relieved at the ruined potential of the pasta growers.

No value adding in our communities, but 500 Government CWB jobs, right? With pensions. One employee for every 125 farmers.

"We need more of the same", says agstar77, "because the CWB does such a fine job, I don't get enough money, so the Government needs to cough up some cash"

CWB Logic 101

Parsley

[parsley]

Presentation to the House of Commons Standing Committee on Agriculture & Agri-food
Presentation given by Larry Hill, CWB director and Adrian Measner, President and Chief Executive Officer

Thursday, March 11, 2004


The CWB are "branding" Canadaian wheat and they say:

"In Poland, pasta maker Danuta produces premium pasta made with 100 per cent Canadian durum, a fact that it proudly advertises."


Would someone please tell the Wheat Board boys that when you buy a baguette from a Superstore in 2006 in Canada, a branding sign is prominently displayed, saying that the flour is imported from France.

Parsley

[parsley]

Per Capita Income of Poland approx. $920.00/year (not the most recent National geographic)

Parsley

[GrainVac]

Was the Poland example just used recently? I heard that exact piece of propaganda at least two years ago. They could at least get some new material.