Western Barley Futures Rally

[charliep]

An interesting day again in Winnipeg - particularly barley (a $4/t move is a rare event).

Any thoughts on barley fundamentals.

1) Is the lower than expected statcan barley acreage realistic? My thoughts would indicate barley acreage would have been higher.

2) What shape is the barley crop in going the summer?

3) How much barley acreage is going to go to pasture, silage, greenfeed, etc. above normal levels?

Charlie P.

[TOM4CWB]

Charlie,

Barley is an interesting crop because of the lack of hay in Alberta!

It is anyones guess how much will be harvested, but a dry western US will keep our prices higher than if just we were dry!

Look at the Western Producer this week at the rainfall since April 1, and it tells a story.

The market is really jumpy, because the is literally no reserve moisture, one hot week and our crop is toast without above average rainfall!

[sewen]

In my community, northwest of Lloydminster, the recent rains have missed us. Total rainfall for the year is about 3 inches. The crops were looking quite good but do not like this heat. If it does not rain soon there could be alot of crops going to pasture, silage, greenfeed, etc. Hay is pretty much non-existent. The market should be jumpy because I'm getting a little nervous myself. It was just 3 years ago we went through the whole year with just 3 inches of rain. Really didn't want to see that again!

[TOM4CWB]

Sewen,

I have 500 tonnes of $140 Oct western barley calls left over that I left an open order to sell at $4.00/t.

You could buy these calls on monday, through your broker, and then go out and make a hot deal and sell the barley you are likely to grow to a feedlot!

The best of both worlds!

If you don't get the barley, your calls will buy it back at the higher price if no one else has much barley either.

If you do get your barley in the fall, and the price goes higher, anything over the $140/t you put in your pocket on top.

Sound like a plan?

I will bet you can sell fall barley for $2.65/bu in your area if you tried, right now!

[charliep]

I like the plan Tom. Just to highlight the strategy, you have sold the barley to lock in the price achieved in the recent rally. Buying the call allows you to participate in a further rally if prices move higher.

A different alternative is to use the rally in both canola and barley to buy put options. A put guarantees the opportunity to sell at minimum price. If prices go higher, the put option expires worthless.

I compare puts to car insurance. You buy car insurance to protect yourself against an accident. If you have an accident, you collect the insurance (I note that your hope is that an accident doesn't occur). If you don't have an accident (in the case of a put, prices rally), your expense is the premium.

The main reason you would use a put is if you can't find a price you feel is good in the local cash market (your basis is too wide). You use the put to lock in a favorable minimum futures price and wait for basis levels to narrow.

Others thoughts/experiences with options strategies and their application in the current market.

[TOM4CWB]

Charlie and Lee,

Is there an internet site that show the past 24hr rainfall amounts in western Canada?

Is there a site for the US?

Hail got 30-50% of my barley yesterday!

Rain was VERY spotty, did western SASK get much rain?

[wedino]

Tom, Sorry to hear of the hail. Not sure on rainfall amount in West Sk. From what I saw driving north of Regina to Elstow (SE saskatoon) last Monday (Jul 09), no amount of rain at this point will help those crops.

[TOM4CWB]

Finally got .5" over most of the farm!

Wheat on dry hill tops brown right to the flag leaf in poor soil areas.

The Canola thinks it is in heaven now!

Killam is just about right for moisture, hailed Canola really coming back good now!

[charliep]

I will look around for a weather site. My sources tell me that western Saskatchewan missed most of this run of rain. Likely wouldn't do any good there now anyway. I continue to be amazed by weather including the spottiness. Even this last week in central where rain has varied from a couple to 2 inches all at once/4 inches over a couple of days. Forecasting production in this environment is impossible other than below average.

Would appreciate any comments from people on crops in their area.

[cris]

gents - crop from Melfort to Saskatoon is v. poor. last week took a trip from Melfort though S'toon, Outlook, Riverhurst, Regina, Southy back to Melfort. Things look pretty dismal. Melfort & area less than 1.5 inches until .6 yesterday. There will be many 20 bus. canola crops(or less). Barley is showing signs of burning up, big white patches. Wheat is between upper shin and mid-thigh. yield will depend on filling, but with few tillers expectations are not high.