New Crop Canola - May 08

[thegrainguy]

Anybody locking in New Crop Canola for $9.00 plus? This is availbe to growers in the Calgary area.

Is it a good idea? I think so, $9.00 is $9.00.

Wonder what the super marketrs think?

[wilb]

Just priced off-the combine yellow peas for $5.80/bu. I think that's an excellent price!

[melvill]

Pheeeeeeewwww! Finally a post that's not a policy one. Nice change.

I agree thegrainguy. Nine bucks is pretty darn good. I assume that's not for a specialty canola. What is the price offered by the same company for canola delivered in February or March or April? The reasons I ask are:
1) because 9 bucks in May represents a $15.40 under July basis which isn't particularly good.
2) What are the interest costs of holding for 9 bucks in May compared to the prices offered for Feb or Mar or Apr delivery?

[melvill]

wilb, can you give us an idea which company or what location offered you $5.80/bu for your yellows? Does the contract have an "Act of God" clause in it? I've been hearing of companies offering "AoG" clauses in their yellow-pea contracts but at a lower price. That's to be expected 'cause the company is taking more risk.

[thegrainguy]

Melvill

The basis is 8.97 under May
April is 8.95 fixed price

[chaffmeister]

There are three things I like to consider.

1. Flat price. Like you say, $9.00 is $9.00. Should never ignore good prices. (Is this net to you?)
2. Basis. This works out to about $13.00 over (Nov). Spot bid of around $340 (correct me if I’m wrong) works out to about $16 under (May). I’m not up on historical basis levels in that area but it sure sounds good to me.
3. Crush margins. The way the WCE calculates crush margins, the board crush for Nov/Dec 07 is about $91 – spot (May07) is about $99. Nothing out of whack here.

The carry in the market is really working in your favour here. With Nov $26.50 over the May, the market is set up to show you some good prices relative to today. On top of that, someone’s willing to throw a good basis at you as well. Considering the board crush margin (which is just an index remember), I’m gonna guess that someone is putting some oil business together and want to lock in the whole package. It’d be good to know what oil basis levels are out there – would complete the picture. Would also like to know who’s bidding.

Bottom line to me is there’s nothing to suggest the $9.00 is sucker bid – there’s nothing to hint that maybe it should be / could be better (weak basis or huge crush margins would be a hint that they could actually pay more.) Having said that, it may very well be case of someone knowing something you don't and the $9.00 is a VERY good price to them. But you know what, maybe at $9.00 it's a case of good for him, good for you.

If it were me, I’d be locking some of this in.

Question: what is breakeven in that area? I’ve got an idea…..

[melvill]

Ah,ha, thegrainguy, I was wondering about what futures the basis was under. This little trick by graincos is something we're seeing more and more of lately. Your price was $9/bu or $396.83/t for delivery in May. Graincos aren't using May futures for pricing canola for delivery in May. The reason is that, in May, May futures are in their delivery month with small trading volume so no grainco will be using May futures as a hedge or to price off.

Therefore the cash price is actually priced off the July futures which makes the basis $15 under.

I'm seeing this little trick by graincos of making the basis look very good by quoting an expiring futures month in which case the basis "looks" very good by the amount of the spread between May and July.

[thegrainguy]

Melvill

I actually work for a grain company and I am having a hard time getting guys to lock in this price. I am looking for advice on how to market this to them because I feel this is an excellent price. The road blocks I get are "It is to far out to lock it in" or " If you are quoting a price for then it should still be there when the time comes"

I do not want to solicite business on this site because this is not the place to do that, so I will not mention where this price is from.

[wilb]

Melvile: this pea price is in SOuthern Alberta, Medicine Hat-Lethbridge area. As far as Act of God, the contracts states: "the grower is absolutely and unconditionally required to sell and deliver the commodity to....." Sounds like legal mumble-jumble, but doesn't really sound like an Act of God clause to me!

[Fransisco]

9 bucks! Heck, I'd take that in a second. Send some of that action Manitoba's way.

[melvill]

Hey, chaffmeister, isn't it nice to see a marketing post instead of a policy one? Other posts remind me of why some call this "Angry-ville"! Now my comments:

1)You're right. 9 bucks is a very good price, regardless of the basis, which as I said, works out to about $16 under July. However, for May delivery in southern Alberta, a $10 or $12 under would be more exciting. Recently this year I've seen $3 under for April delivery.
2)Chaff, you're right again about the large futures carry doing producers a favour as long as weaker basis levels don't eat it up.
3)I like the idea of 9 Canuck bucks being "good for him, good for you". Yes, maybe $9.25 would be better for the producer but 9 bucks is still nothing to sneeze at. According to some work I do every two years, the price of canola at Alberta crushers was only at $9.00/bu or better 16% of the time between August 1995 and July, 2005. During that same time period it was $9.50 or better only 3.6% of the time.

[chaffmeister]

This 9.00 is a new crop (fall) bid – right?

Melvill – is there a reason you’re looking at the July?
WCE Nov07 closed today at 382.70 - $9.00/bu is $396.83, or $14.13 over the Nov.
8.97 under May (356.20) means spot cash is about $7.88/bu
Am I right so far grainguy?

If so, I won’t change anything I wrote above.

Melvill – July closed today at 366.40 – makes a 396.83 bid about $30 over, not 15 under.
Unless I’m missing something…..

Grainguy – don’t you have a resource to go to within your company to develop marketing/origination strategies?

[charliep]

Just curious what farmers need to cover their carry (interest and storage). A $9/bu May price may be close to a $8/bu off the combine depending on a farmers financial/bin space situation.

Not picking on your company but are companies offering minimum price contracts (rally masters, bull busters, etc used to be some of the old names).

Will note the nice boost in grain prices today. Again from Informa Economics, there are a lot buyers covering their summer and fall needs - no processor/feeder in their right mind will want to be short corn this summer. This active risk management process by buyers (they are paying up now to ensure supplies in the next 6 months) will take at least some of the buzz out of the market this summer if weather conditions do not get really nasty. Bad weather this summer and all bets are off. Also made some comments in the question on SPE.

It feels good to talk about something other that CWB.

[melvill]

Chaff, I understood this to be for May 08 delivery. thegrainguy, am I out to lunch on the delivery time?

[chaffmeister]

I think all this discussion on CWB barley has made me rusty.
Now I see that you're talking about new crop in the SPRING, not fall.

Let me give it some thought....