Canola Price Protection

[ward.toma]

Sorry about the double pure speculation. It was not meant for extra emphasis.

[errolanderson]

Ward . . . to run any business requires
price speculation and price risk
management. Building a minimum floor
price contract on your own without
government program involvement or
interference is a very strong marketing
skill. Growers that have this marketing
ability should be commended. What Tom is
saying is a grower can lock his price
downside while taking advantage of any
price upside. What business person would
not want to do this? This is not 'wild
ass' speculation, this is a smart
business move and a prudent business
strategy.

Errol

[mbratrud]

Ward,

I agree with you that if your are generally long you are speculating.

Where that agreement ends is if you have your down side risk eliminated, therefore I can get no less than X but I have upside opportunity that is Risk management with a lottery ticket in my books, not speculation. Agree with Errol and Tom on this.

[ward.toma]

If you've fixed your price with a delivery
contract, as in Tom's example, there is no
downside price risk. All you've done is buy a
lottery ticket.

[ward.toma]

Errol, I don't disagree with you. Both
strategies have been used to make many folks
money. As I said in my original post, make
sure you know what is hedging and what is
speculation.

[mbratrud]

I agree with you Ward that there are alot of farm folks that confuse speculation and hedging.

[errolanderson]

Purchasing a call option to replace a
cash grain sale is no lottery ticket.

This is a farm business decision to take
advantage of a market rise should it
occur. The grower has already guarded
his or her price downside. This is basic
marketing and a very strong pricing
management tool especially though
weather markets.

Errol

[TOM4CWB]

Dear Ward,

Perhaps you missed to issue of selling grain that is not actual inventory in a bin... but is "unharvested production" that is expected to be sold after it IS harvested. Buying options back or going back long futures on havested production that was alredy sold once...is very different...

Many grain growers in 2002 had huge losses by selling 3 times the actual production they ended up harvesting...

Then these growers needed to buy back grain to fill these contracts at prices much higher than what they had hedged at... hence the need to protect against upside movement till the grain is secure in the bin.