Market Factors/Strategies

[charliep]

Complaints there is not enough marketing strategy so here is the opportunity. Participants site. You make it workd

What are you following in the market this week? What strategies/tactics will you be executing?

On new crop pricing I would be on alert during March/early April for opportunities. Suspect they will not be much better than today.

On canola, we have had a good run bases on demand pulling deliveries and several sniffs at $10/bu (old crop at least). Demand will likely slow into the spring as China sales slow. Still lots of Canadian canola in the bins (record crop). US soybean are likely to increase (USDA outlook last week) - bigger carryovers. I won't put a price (others who are on this site do a lot day to day monitoring of the market and are in a better place to call). I would have a chunk (25 % for nice round number) of my new crop canola priced with a target of something over $9/bu. For Albertans, the canola spring price indorsement is $8.85/bu with the note prices have to drop below $8/bu to trigger.

If you want to go further out and look for things that are happening, ICE is looking at the cash clearinghouse concept closely and considering offering it as a service. This answer many of the questions being posed in concerns (except maybe actual prices). I saw an excellent presentation on this at WBGA annual meeting. Farmers need to educate themselves about the potential new cash contracts and be prepared to use them. No use equals no contract. The benefit will be price transparency so you at least know most recent traded values, transactional security (you will be paid) and something you can take to the bank to support your loan requests.

[charliep]

A good quote from this week's emalt.

Quote of the week

"All that we are is the result of what we have thought. The mind is everything. What we think we become."
Buddha

[BreadWinner]

I took an FCC marketing course this winter and came to realize that I have not been agressive enough in crop contracting. They said to use the seasonal highs fron feb to may to price the majority of your crop. I have 15bus/ac canola averaging $12.20 and 20 bus/ac oats at $3.00 contracted for fall delivery. With prices dropping I have a hard time contracting into a break even cost of production. Still waiting for that seasonal rally they told us about.

[charliep]

I always have trouble recommending 100 % new crop pricing ahead of harvest given production risk for most farmers. Having said that, being consistent year to year and following a similar market plan can have a manager pretty aggressive in the spring (again depending on their market plan and what they want to accomplish). Someone who was aggressive in the spring of 2007 would have locked in a fair chunk of canola at under $10 - way less than the price winter 2008. The same marketing program would have yielded canola prices in the $12 to $15/bu category in the spring of 2008. Selling over the past winter, new crop 2009 has been in the $9 to $10/bu range (depending on where you are). Suspect that if you average the 3 years (realizing the 2009 has not been told), you likely could have an average price in the $9 to $10 area - you can tell me whether this is a profitable price for business.

Don't know if you are in Alberta but again highlight SPE for this province. Leaving the decision till April, you have the opportunity to lock in 30 % of your crop at something over $9/bu (if you are alert) and have effectively what is a put that locks in $8.85/bu (realizing the goofy AFSC process needs prices below $8/bu to trigger a payment.

Hopefully this generates discussion. What are others canola and other crop strategies?

[charliep]

In the above example, I am assuming the Alberta farmer takes crop insurance at the 70 % level. If you take 80 % coverage, you might look at 20 % forward pricing. You can also use your actual yields versus crop insurance coverage ones and push your pricing to this level.

[skhadenuf]

Just wondering does your alberta crop insurance pay out only the in claim shortfall in price or on all your bushels grown? Thanks

[charliep]

With SPE, you have price risk managment up to your to your selected coverage on normal production insurance (60, 70 or 80 % of crop insurance coverage yield) - the farmer makes this decision and pays premium. You have to take regular crop insurance to qualify for SPE. You also have variabe price benefit as a standard feature of regular crop insurance (ability to increase coverage if you are in a claims situation and fall prices have increased by more than 10 % from the spring coverage levels.

Put another way, Alberta effectively provides a call option on insured yields as a part of the normal CI program and if you pay a premium, a put to protect against lower prices if your yields are above insured yields.

[charliep]

On the last paragraph to make sure clear, SPE price insurance only covers your insured yield on CI.

[Ron]

Charlie, just checking that I am looking at the numbers right.
Example
Feed barley SPE is 3.70/bu so if the fall price drops by 10% or more (.37 drop to 3.33) I will get the difference between the fall price and 3.70/bu on my elected coverage (80% for this example).
If my average is 100 bu/ac then and the fall price is 3.00 I would get 80 bu times .70/bushel or $56/acre?

Please let me know if my math is wrong, it looks like SPE is the way to go this year for cereals at least.

Do you know when the premium rates are released?

Thanks for all your time and patience here. We tend to forget this is a marketing forum.

Ron

[charliep]

Your example is right.

More clarity, if you were in a crop insurance claims situation, you get paid out first under the crop insurance and finally under SPE for actual yields.

In your example, say you got 50 bu/acre. You collect crop insurance on 30 bu/acre at the $3.70/bu coverage price. Under SPE, you would be paid the 70 cents/bu on your 50 bu/acre actual yield - i.e. don't get to double dip.

[charliep]

Would encourage Albertans to have a look at the Cattle Price Insurance Program that AFSC will be offering this summer. This process/risk management product may have application for crops. The problem with SPE is the time between when coverage prices are set, premiums are established are calculated and farmers make a purchase decision about SPE. New product would have daily calculated premiums based on actual market values.

[Choice2U]

I should have bought a Nov Canola put about 3 - 4 weeks ago. This would have put money into my 09/10 crop account. I had a March put that expired about 2 weeks to soon so never made any money there. The Sept/Oct basis has narrowed by $10/mt ($43 - $33 in my area) so am watching it now as an alternative to my first missed opportunity (I was going to say mistake but chose another word). If this canola drop continues, we might see a $23 basis for fall deliver which I will lock in 20% of crop and hope for a futures rally in the next number of months. If canola shoots up, I will not miss another opportunity to buy a canola put that locks in a profit for another 30% of my crop. If the market stays down, I'll just sell my wheat to cover my cash flow needs....oh, wait....I can't. Seems that there are no good bids out there for anything else so contracting 09/10 is not a great idea...at least right now. Correct me if I'm wrong, burbert as you're always so enlightning on this stuff?