New Crop Canola - May 08

[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....

[Fransisco]

Oop's missed that one too. Right now it's off the combine price's that I'm looking for.

[thegrainguy]

We do carry min/max contracts.

Chaff

The futures prices were right but basis are way off.

Spot - 365.20 May 07 - basis 7.00 over
Nov -07 - 382.70 - 18.00 under
May 08 - 406.60 - 8.97 under

[thegrainguy]

Just had a GPO hit for $6.00 yellows off the combine.

[chaffmeister]

I note there’s about $24 in futures carry from the Nov to the May – good incentive to store. Take grainguy’s fall basis of $18 under versus the May basis of about $9 under and the cash carry is $33 (from Oct to May). Figure out what it costs you to store and the rest is gravy. This market is telling you not to deliver canola off the combine, but to store it. (Sell it for delivery in a deferred position.)

Grainguy – you also say your April price is 8.95 – so you’re paying a nickel more for one more month of storage. Going from Oct to April, the cash carry is about $30/tonne or about $5.00 per month (about $0.113/bu/month). Going from April to May delivery pays only a nickel more.

The market is clearly paying you to store. Looking at the spreads, you may be better off selling the April delivery (8.95) than the May (9.00) – depends on your cost of storage, appetite for storage risk, and whether you have a preference, due to other issues that can impact deliveries (such as spring work).

One more thing to consider is how this basis of 9 under the May or 15 under the July compares to typical spring basis levels in that area. I can’t address that. But if current spot basis levels of 7 over is any indication, this would lead to a suggestion that you should lock in the futures (May or July) and negotiate a spot basis next spring. You could be adding another $15-16 per tonne in your jeans.

Any way you look at it, if you’re looking at selling new crop, sell the deferreds rather than fall off the combine.

Would still like to know breakeven – Melvill, any ideas?

[sawfly]

dec, 06 i did my break even on canola . it was 160$/acre up from 145 2 years eariler.

if i had not bought N it would be probably 10-15$ higher now.

our problem is we generaly can't count on yeild to be any more than 25-30.
with poor years in the 18- 20 range and good in 35-40