Cash Canola ?????

[Hopperbin]

Today Cash , Jan futures and March futures are all same price. Not often I see cash the same as current futures month. What is that cash price anyway. Us farmers don't never price off the cash.
Another question to whoever has an answer is why does Cargill make the farmer take the difference on the futures months for basis contracts on the specialty canola?
On the Specialty canola the basis is locked in for a certain month but the problem I have is that they have Dec. Jan. Del. off of Jan futures(no diff. than any of their other month contracts) normally if you do not price before delivery you have to roll the contract into the next futures month and lose part or a normally a big part of your special basis. I would like to hear others comments on that issue.

[TOM4CWB]

Hopper,

Sounds like pooling... just be grateful... you are not loosing but a very small amount!

GRIN

(> :{

[chaffmeister]

I'll give it a shot.

Getting dinged with the spreads is common when you roll hedges (not just on specialty oil contracts - if you haven't been dinged before on conventional canola, consider yourself lucky). To see why Cargill (or anyone else) would do this, you really need to look at the whole picture from their perspective.

First - what we know. They’ve bought canola from you and its unpriced – just a basis. No futures hedge required.
On the other side of their ledger, we assume they have sold the canola (or the oil and meal). We need to assume this is priced and so they are likely carrying a hedge on their sales. Selling the cash products would make them long canola futures.

When you price your canola prior to delivery as expected they would sell those futures. Once your canola is priced, they have no need for their long hedge. If all goes well, all suppliers (farmers) will price on time and their total futures hedge position in the nearby delivery month would be liquidated quite orderly.

But when you want to stretch out your pricing past the futures delivery month used to price your canola, those futures they are long becomes a problem for them. As indicated above, those futures would have been liquidated (sold) when you priced your canola. Now they need to be rolled to the next month, avoiding futures delivery, awaiting your pricing. To do this, they need to sell the nearby month (where their hedge was) and buy the next one out. If the spread is say a $10 “carry” (the nearby contract is $10 lower), rolling your hedge will cause them to lose $10 in their hedge on their sales.

Real simple – nothing has changed except they sell their futures hedge at say $400 and buy it back at $410. The fact that they are different delivery months is meaningless. Anytime you do this, you’re going to lose $10.

So when you want to delay pricing and the market is showing a “carry”, you will likely get dinged the difference to compensate the buyer for the loss they are taking by doing it. If the spread is "even money" as it was at the close today, then it shouldn’t cost you a thing. If the market is inverted, by all rights, they should pay you the difference (improve your basis).

One thing to keep in mind when delaying pricing in a carry market. Markets seldom “earn” their carry. In other words, with no other market influences, deferred months will gravitate toward the price level of the nearby month – in other words, they will drop. If you are bullish, likely best to price your sale to Cargill and buy futures.

BTW - what cash price are you looking at?

[Hopperbin]

This cash price. http://www2.barchart.com/dfutpage.asp?sym=RS&code=BSTK&section=grains

Good explanation on the rollovers.
This 09 year Cargil went to delivery periods of each month from 2 month periods last year so the farmers have better ideas when they deliver. They have always taken delivery on time which is good. But the Nov. and Jan. delivery months must still be priced before delivery or else one will lose the special basis that one has then it is not so special anymore in fact the basis could get to worse than regular canola. Guess I just like the option of waiting longer for pricing so I took the June, July and Sept delivery periods risky I know. And I let them know I want them to use later future months on the Nov, Jan, Mar, delivery months.

[padron]

There is something seriously wrong with that price chart. You wouldn't see cash canola prices rise $10 while futures drop $18. I'd say there is a typo which should be corrected today. I've never seen this page before but I know a little bit about canola markets.

[classicalliberal]

If you are looking at the Jan futures price in the delivery month, all price restrictions, like limits in price movements are taken off. If the price runs up or down significantly, someone is getting squeezed, like in minneapolis wheat when it went to $25/bu, someone who was short in the delivery month was being squeezed. Never look at the delivery month for pricing when you are in the delivery month. If you deliver your grain in the nearby month like january for example and there is a higher price for later delivery, the market is telling you to carry the grain and sell later, especially when there is a big crop (the market's way of rationing grain from one period to the other). If you don't price before first notice day of delivery which is one day before the last business day of the preceeding futures month, then you are subject to making or taking delivery, which is why you are rolled to the next futures month and like as explained above costs money. Essentially, you are paying the storage on the grain in terms of an adjusted basis by deliverying early and then rolling the futures rather than if you would have sold forward for a later delivery period. It works the opposite way when the markets are inverted.

[cottonpicken]

ASSuming its true.

If everythings running normal in the futures it is in "contango",where futures carry a premium over spot.

If its not, it is in "backwardization".

Something i touched on in a different market not to long ago.Although does not specifically apply here.

Backwardization is rare and i have not researched enough on the softs to make a conclusion,and am on family vacation at the moment.

My big gut says,product is needed NOW,and not on the paper level.The current business climate is in chaos,with buyers and sellers and paper traders not knowing which way is up or down.

Technically it couldnt happen at a better time,if spot price moves it would have to pull futures wouldnt it?

[Zaphod]

There's virtually no open interest in the Jan contract. That price is meaningless, as is the Jan/Mar spread.

[chaffmeister]

Padron:
Barcharts was using a day-old cash price.
should be ok today - about 18 under the Jan.

[chaffmeister]

Couple of points for clarity:

It’s a good suggestion to stay away from futures delivery but - you can remain in the delivery month on an unpriced contract – it depends on the buyer. Most won’t allow it – some will. Since you have just a basis contract, you don’t have an actual futures position in the delivery month so no need to worry about delivery against futures. In fact, by that time the buyer may not have a position in the delivery month either. At this point, the futures price is just a number to reference for both sides.

Classicliberal – you’re making a common mistake. You say “if…there is a higher price for later delivery, the market is telling you to carry the grain and sell later”.

More precisely, the market is saying – IF YOU ARE SELLING GRAIN, sell it for delivery in a deferred position rather than a nearby position. It is NOT saying to “sell later”. Holding unsold grain in a carry market often ends in disappointment as markets tend not to earn their carry - the deferred contracts migrate to the nearby price as time goes on. The market is willing to pay you to store grain - but you have to sell it to take advantage of it.

Think about it – holding unsold grain means you need a rally to gain. And if there’s a large supply (which is causing the carry in the first place), what’s going to make it rally?

[chaffmeister]

CP:

The term is backwardation.

There’s nothing abnormal about backwardation (an inverted market). A carry market (contango) is no more “normal”.

Backwardation is not rare. Happens all the time, particularly in the ag markets.

Spreads are one of the most important factors/signals in futures markets – and probably the least understood. Most farmers watch basis levels closely and have a good sense of what is a good basis. But how many really understand what the market is telling you when you see an inverse or a carry?

Even Bernacke got it wrong when he thought the contango (carry) in oil futures meant that the market was predicting higher oil prices. Problem is, the message has nothing to do with forecasts (futures markets don't forecast). A contango in oil simply means that the market has too much oil and is giving an incentive to store it. If anything, its bearish.

[Hopperbin]

Padron maybe you are tight, right sorry. LOL
http://www2.barchart.com/dfutpage.asp?sym=RS&code=BSTK&section=grains

What really does this cash price mean anyway?

[mbratrud]

There is often confussion with Terminolgy especially at the elevator level. Many people talk about futures when refering to forward selling cash. If your selling futures your selling paper if your selling cash your selling physical..

Cash price would be what you are selling your physical for today.

Futures used for hedging purposes by traders ie. Cargill are rolled out of the nearby futures month usually by the third week of the month prior. For example many traders would have rolled there Jan Futures position to March before Christmas.

As a result the Open interest in Jan is almost non existant. The Only time someone would still be in Jan is if they wanted to take physical or Deliver, which is a whole other animal. Doesn't happen often with Canola.

So when refering to Cash easiest description is the Value for physical today. When referring to Feb, Mar and so on, the proper term is Deferred Delivery Price.

As a person who works with producers to help them understand this stuff, it drives me nuts when I talk to an elevator agent about forward selling and they refer to it as futures, it's not a wonder that guys trying to figuire this stuff out get confused. They use the futures prices to determine the Cash price or the Defered Price.

That's just my opinion though I'm sure they think they are just as right as I am.

[mbratrud]

Cash Priced refered to at Barcharts would be a cash price in S'toon which is Par point for Canola

[mbratrud]

Cash Priced refered to at Barcharts would be a cash price in S'toon which is Par point for Canola