An interesting tidbit on canola

[dnach]

I work at a major canola seed treating facility, we treat for most of the big boys. Seed treating orders were going at a record pace, expecting big acres but over last two days orders are being put on hold or cancelled. It seems price discovery hit the canola seed retailers. I think the canola market has crossed the profitability line for some areas in western Canada, hopefully the market can react and stabilize or move back up?

[countryguy]

I am SERIOUSLY thinking about scrapping a whack of canola acres,in fact I'm quite sure I am going to.I will be making my decision as I sleep tonight.I'VE HAD IT!!!!!Read it and wheep seed companies and traders!

[melvill]

Help me guys. What I don't understand is why so many people are telling me they're going to shrink their canola acres because new-crop futures have dropped so fast. Did no one keep an eye on November 03 futures and lock in some production when that futures was trading between $380 and $390?

Finally, it would seem to me that the canola market must step in sooner or later to buy some 2003 canola acres. If they don't, exporters and crushers will be falling all over themselves to source incredibly low after-harvest supplies of 2003 canola. In that scenario someone inevitable looses - crushers shut down or exporters have nothing to export or both.

In the mean time an astute marketer might be tempted to buy some September call options. Of course the time value and, therefore, the premium will be relatively high and timing the purchase will be very important but it's an opportunity . . . .

[melvill]

Melville; Chemical carry over due to the drought is the biggest reason for seed purchase hold and cancellations.

I'am totally surprised no one has asked the Kernel's Marketing Club for it's opinon on what the canola market yet. After my forecast last spring, I thought I would have gained alot more respect for my opinon like you and Charliep get.

Believe me no one has asked and I have some inside information into the future that should interest you all. Just ask Charliep about my experise in this area.

[henbent]

dnach, Apparently the commercial system is jammed up with last years poor quality canola crop, no place to sell it GMO and green seeds present a double challange. It's hard to be excited about canola this year, if some of last years crop is still unsold, or about to act up in the bins, when/if it ever warms up.

[bmason]

With last years severe drought and another one possible, it'll be tough to convince growers to keep up canola acres. The crop just simply needs more moisture reserves than wheat or peas. Tim Ball predicts another hot, dry summer which is negative to canola. I know we aren't near that point yet, but in any case, we need good spring moisture to encourage canola plantings. The price to this point is a hindrance as well. I planned to grow an extra 1/4 section, but the price is far too volatile to give encouragement. Hindsight on price sure looks good right now. I was stung hard last year pricing canola, then had no crop and had to buy my way out. It makes a fella quite gun shy to pre-price. Canola needs some good news a new market countries for regrowth of acres.

[countryguy]

Kernal,if I took a trip to Camrose with a big bottle of fine whiskey might you be persuaded to spill the beans?

[bmason]

Hi Kernal: I'm interested in your opinion. Can you give us a tidbit? Some of us need to be shook from time to time with a wake-up call!

[bmason]

Hi Kernel: I'm interested in your opinion. Can you give us a tidbit? Some of us need to be shook from time to time with a wake-up call!

[dnach]

melville, without an act of god how many bushel's would you have locked in?
The majoity of the canola in this area was bailed and what was taken off run 5 bus/ac. Maybe you have a bigger 'set' than those of us taking 100% of the risk growing the crop. Some ares in the province have good soil moisture and may be more comfortable in locking in 5 - 10bus/ac. But what do you do if there is no crop at all. I had a chance to lock in 8.35/bus canola in Dec. but with very little soil moisture and weather patterns the same as last year the speacialty oil canola's with the act of god contracts were a no brainer.

[TOM4CWB]

dnach;

10-4 on the specialty contacts!

I am going to use the price stabilisation system on Crop Insurance as my risk management for the 80% my CI Policy will cover.

I agree that without a fair act of God clause, I won't sign anyones DDC or Basis contact.

My normal Canola buyers have been real decent... they include Cargill, Agpro, CanAmera and Pioneer. Everyone of these buyers has dealt very fairly with our farm in the past... I appreciate their good faith in looking out for us!

[melvill]

dnach, as bmason says, "Some of us need to be shook from time to time with a wake-up call!" Certainly lots of people are gun shy about forward contracting this year after last year's problems.

However, one way to cover part of the price risk without making a commitment to a grainco or crusher is to hedge using futures. Hedging requires having a futures trading account but it's another tool in your marketing tool box that we all need to use. Certainly if the market were to go much higher at or after harvest and you have no canola you'll still have to buy your way out of the hedge but the cost isn't as high as buying out a grainco or crusher DDC.

Finally, it all depends on perspective. I had a canola grower call me a week ago who is going to contract 25% of an average crop, before seeding, if the opportunity arises. He told me he is generally an optimist. Sometimes I think we get weighed down by pessimism or, as my wife's uncle calls it, "coffee shop gloom".

[rain]

mellvill if your producer is south of highway #1 this is probably a good thing. If this producer is north of highway #1 all he should consider is a basis contract. Unless he has a hedge account and get long if drought returns.

[dnach]

melvill, good point, but explain the costs involved and this advice might have been better anounced in December for those who needed it, hindsite is 20/20.

[melvill]

dnach, your point about new-crop hedging advice in November and December is well made. However, Charlie and I have been very hesitant about giving direct marketing advice on this forum even though occasionally we have suggested when producers need to take notice of certain situations. We think our role is to moderate and encourage discussion.

That being said, the cost of setting up a futures trading account isn't very high. A potential broker will want piles of paper work detailing your financial situation. He'll probably want an assignment on your first-born to make certain you don't skip out on a losing trade! Once that's done and he sees that you aren't in dire financial straites, most brokers will want a cash deposit as a sign of good faith. The amount of that deposit varies from company to company. Brokerage firms that don't want to deal with "small" traders like farmers will make the deposit really big. Those that want to deal with farmers will ask for a smaller deposit. The deposit is refundable if you decide not to trade any longer.

Contrary to popular misconception, the actual cost of trading one futures contract - 20 or 100 tonnes of, say, canola, is roughly $1.25 to $1.50/tonne to get in and out.

If you're interested there's more info on choosing a broker at

http://www.agric.gov.ab.ca/newsletters/market_clippings/index.html

under "Choosing a Commodity Broker"