Interesting interview on the global economy

[skhadenuf]

As someone who admitidly is not up to par on the worldly economic theories as some are speaking of on this thread, and I might add certainly enjoy the views of all, I would like to ask a question or two. In terms of grain marketing ClassicL you stated you have grain priced years in advance for a margin profit. Could you enlighten us on what exactly that means in total. Did you lock in your average production of each crop? if so what happens when your 40 bushel canola lockin turns into a 5 bushel acre crop? In order to lock in a profitable margin you must have all your inputs locked in also, what price is your fuel, fertilizer, chemical, machinery, rent, unexpected engine failure, repairs, etc, etc locked in, because to say you have a profitable margin locked in, am I wrong to say you must know all the variables and must have control over all the variables for a profit number to be locked in? Not trying to be sarcastic at all, this is not just asked of ClassicL but others who have posted on here that it's easy, just lock in your profit, well let's test it! Tell us what crops you're going to grow is your seed purchased now, fertilizer etc. at what price and over a year or two all of us lesser idiots can see for ourselves how this guaranteed profit deal works.

[cottonpicken]

Cat got your tongue classy?

Want some proof as to how i role?

https://www.agriville.com/cgi-bin/forums/viewThread.cgi?1202586058

https://www.agriville.com/cgi-bin/forums/viewThread.cgi?1202923464

Thats right,ten months before it happened i said it,and was villified and laughed at.
And then it happened.
And then i seen the crash.
And was villified and laughed at.
And still being villified now.
Re-reading your goofish old posts pars reminds me of who i'm dealing with.

[classicalliberal]

There are some things that you can't lock in like engine failures and breakdowns. From my point of view, you should budget those kinds of things that may or may not happen and if they don't happen it is gravy. Then there are a few things that you have to assume the cost of and each year you have to assume, like for corn, canola and soybean seed, which is expensive, that it will go up a certain amount each year. You put all of this together and you add in the prices and your average yield. Depending on where the market is at the time you do this, I suggest having a spreadsheet open with the various costs so you can change the prices as they change but when you notice that there are some good returns, it is wise to either lock some in with a cash sale or a futures sale.
If you don't come up with a crop there are several things you can do. The first one off the top of my head is that when you sell forward grain in the top 1/3 of the market, there is a 2/3 change that by the time you have your crop failure, that the prices will be lower and you either buy back your futures at a profit or find and deliver the grain. Another thing you can do is buy call options (not on anything very far in advance because the time value of the option is prohibitively expensive) but say six or eight months in advance. If you can't produce the crop and the market goes up, your options will be worth relatively the same amount as the increase in the cash prices. The third thing you can do is spread your futures position (buy back the nearby month and sell the new crop month) or get the company to roll the contract forward to the next year. The price difference will be the difference between the harvest price and the new crop for the next year price. I'm not sure if every company does this but most should. That is why I always like to use futures, because they are more flexible and can be bought back easily. With special crops, there is no futures market, but you could use other futures as a cross hedge, for example, soybeans or soyoil in place of canola or other oilseeds and corn for barley or oats. There would be a higher degree of basis risk however.
Not all risks can be managed, but many of them are manageable and people should try to manage them as much as possible. I can tell you that I missed a lot of the rally last year because most of the crop was sold at lower levels, but we still locked in a profit. I believe by having a plan for marketing and locking in profitable levels when available, you will make money year after year, than those who basically sell when they need cash. This past year or two has benefited those with that method but I think they will be stung like this year potentially. You basically have to run it like a business, which I guess the people on the CBC blog didn't approve of it. They accused us of being factory corporate farmers and that the family farm should be able to survive. If that were the case and farming was that easy to make a living, then everyone would be doing it. That is hardly the case anymore. I would be interested in hearing about other ways of marketing grain as this way isn't the only or best way.