Canola and Feed Barley Rally

[charliep]

Just a note to highlight the rally in feed barley and canola. With a caveat on both amount of crop sold and comfort with yield prospects, you should be taking some more pricing action in here (reward rallies with sales). I borrow the following ideas from Greg Kostal - Sparks commodities as strategies.

1) Reward rallies by scale up selling (40 t at a time) in this rally. If you have your fall cash flow needs covered, start pricing some into early 2002.

2) If you are not willing to do this/maybe have some yield concerns, buy some puts for both barley and canola on a scale up basis. Again to highlight, you are setting up a minimum price/insurance scenario in case the market over reacts.

3) Trade it as you would futures with a trailing stop $5 to $10 below the market. As long as the market is moving higher, follow it up with no additional pricing. If it dips (likely reflecting a decent rain across the prairies), then be prepared to react quickly in pricing additional crop. It is usefull to know which companies in your community hold their previous days street price open for a while the next morning ahead of the futures market opens.

The issue in a market like this is to have a plan and the discipline to act on it when targets are achieved.

Others thoughts.

[TOM4CWB]

Charlie,

My 140 Oct Barley calls did not sell, I was very surprised they didn't!

So I took the order off to sell them as I don't mind some cheap calls that are now in the money!

I scaled back all my selling, even got Canola filled at $338!!!!

Hope I rains soon, but I hear the Canola limit is now $30 during the session, so when rain comes, watch out!!!!

[melvill]

Yup, tom4cwb, WCE limits have changed, probably nearly a year ago now. The daily limits are:
-canola $30/t
-barley $7.50/t
-feed wheat $7.50/t
-flaxseed $30/t

These limits are in effect all the time. You'll remember under the "old" system that the daily limits for oilseeds were $10/t and feedgrains were $5/t with expanded limits of $15/t for oilseeds and $7.50/t for feedgrains. Then the CBOT increased their daily limits and removed the expanded limits. The WCE pretty well had to follow suit.

I see this morning (8:48 a.m.) (ianben, what's that in GMT <chuckle>) that new-crop WCE canola is up $4 to $5/t. It might be characterized as a weather runaway pricing opportunity for anyone who doesn't have significant production risk and who hasn't gotten any new-crop canola priced. New-crop barley is up $3, too. It's a pricing opportunity for new-crop barley, too. Remember the rule, price into a rally 'cause nobody knows where the peak is ' till after the fact.

[TOM4CWB]

My Broker tells me the limits on Winnipeg Western Barley and Feed Wheat are $10.00!?!

He even phoned the floor while I waited on hold!

This will be a very interesting rally to watch wind back down, if the US markets hadn't turned up, we would not have gone near this far!

I actually got some Oct feed wheat sold over $140 and Oct western Barley over $148!

It is easy to put short positions against my calls that are already well in the money, it doesn't matter if I didn't harvest anything, I am covered by the call options!

I will be surprised if we make it to Friday without a major correction back down!

[melvill]

TOM4CWB, you might want to have a short talk with your broker's contact on the floor. This morning I checked the WCE web site and phoned Lyndon Peters at the exchange because I was thinking, oh gosh, I've messed up! Confirmed that feed wheat and barley limits are $7.50/t. Just goes to show, even the best mechanics (or brokers) can't fix everything.

Glad to see you're taking an active part in these market rallies. This morning I'm going to visit three brothers who've farmed together for 15 years. One of them is trying to convince the other two that looking after the business side of the farm (including the marketing) is just as important as getting all the work done, which they do very well. I should have you on stand-by on the phone to help me convince the two.

BTW, tom4cwb, I'd love to spend a little time on the phone with you. I particularly enjoy "brain picking".

[charliep]

Just a note to continue to highlight this as an pricing opportunity. Today's USDA report was at best neutral but the market is focused on the perception of nasty weather in the US (note not the reality). Weather over the next 3 weeks is critical for corn and next 5 weeks for soybeans.

[ianben]

Hi All
Just moved up here from fantasyland.

Your wonderful system, our livelyhoods, depend on the markets perception of nasty weather.

So weather does control the market?

So are futures gambling on the weather?

Toms reasons for why some of my ideas would not work were no-one can tell what the weather will be in 3 weeks.
I must agree with that.

So gambling on something as uncertain as the weather is the best way to fix a fair price?

How about it Lee and Charlie go back to fantasyland and tell us what you think are fair prices for commodities in $/bu.
After all it is only make believe down there.

Tom what have been your highs and lows over the last few years?
Has your marketing saved you from crazy low prices?

Regards Ian

[TOM4CWB]

Lee,

My Broker was misled!

As the Barley and Feed Wheat were limit up today, does this mean an expanded limit tomorrow?

Seems Canola at $30/t and Barley and Wheat at $7.50/t is out of kilter!

It used to be $10/t for Canola, and $5/t for Barley and Wheat, why did the limits now get this messed up?

A limit move helps no one, as transactions are either not allowed to happen, or are a pure guess!

Ian,

I have always tried to price in the top 50% of the market, or at a price that our farm can make a reasonable profit growing the product at.

When Barley was $1.80/bu for fall delivery I would not sell.

When Barley was $2.55/bu, with a real good basis, I did sell.

Now with my Call Options, I am net over $3.00/bu.

Some years these Call options did cost cash 1% of Gross Sales, but I consider this a small price to pay to remain profitable.

This Spring I spent 2% of gross on call options, but in the end if prices continue rising it may be back to 1%

I look back on the GRIP days of government programs, and if I am careful, I can buy options for better coverage than GRIP, at 1/3 the cost.

Personal initiative is away ahead of government social programs!

I must admit that the Canadian Government spent about $30,000 training me over the last 10 years, which is one reason I feel an obligation to try to help others, because others helped me learn the skills I now have!!!

[melvill]

Nope, no expanded limits on anything at Winnipeg, or CBOT for that matter. Now there's just one large daily limit at both exchanges. The change to one large daily limit was initiated by CBOT and WCE pretty well had to follow.

I'm not certain about CME except Canadian dollar where the limit is varies around 4 cents which basically means no limits at all.