canola strategy

[tstep]

Thanks Errol. Your topics are always good food for thought...

[wd9]

Can we really believe the stories of
global economic crunch? Corps are flush
with cash, debt ceilings are only a vote
away, seems the talk - like the money -
goes on and on. If the 'crisis' was an
actual problem, canola would be 5 bucks.

[cottonpicken]

The symptoms of the global financial problems are-
100 dollar oil,1600 dollar gold,16 dollar beans....

[mcfarms]

Add QE 3 to the equation

[MarshallDillon]

This could be the one historic moneymaking year that near-retirees dream about. Agree 100% with Mr.Anderson the fly in the ointment will be macro. A black swan is right around the corner.

[jdepape]

Just to go back to the original topic....

I really like the idea of setting a minimum price
contract using options but Errol, I don't agree that
the call strategy gives a higher floor price than a
put strategy.

It appears you're using the 650 call (which is out-
of-the-money by almost $17); if so, the premium is
much lower than the premium for the 650 put
(19.20 vs 35.90 as of yesterday's close), but the
minimum price achieved would be the same
(assuming the same eventual basis - it appears
you're using a basis of 16 under).

650 call = 19.20
Min price = 633.30 (actual futures) - 16 - 19.20 =
598.10

650 put = 35.90
Min price = 650.00 (put strike) - 35.90 - 16 =
598.10

Using out-of-the-money strikes will give you lower
call premiums and the upside doesn't kick in right
away (Nov futures must move about $17 before
the call is in-the-money)

Compare the at-the-money 630 call to the 630 put
- the premiums are very close, you end up with
the same minimum price (lower than if you used a
higher strike) and the upside kicks in immediately.

The key difference between a put and call
strategy is that with the put strategy you aren't tied
to a DDC - which has its pros and cons.

[errolanderson]

thanks John . . . .

If there is no advantage signing the DDC
and buying a call then just buying a put
then from an options standpoint . . . it
may be best just to load with puts and
not commit to delivery.

But if you can commit delivery, a
deferred delivery contract (DDC) will
always net a grower a higher price than
a put option outright.

Jan canola $600 puts bid at $16/MT
today, if filled . . .

Strike $600 - premium $16 = $584/MT
($13.25/bu) - your Nov/Dec delivered
basis.

This option expires around Xmas.

[TOM4CWB]

errol,

Just did a batch at Viterra

$620 put at $21/t worst we can do is $13.17/bu fall delivery... upside open.

I think this is a fair way to reduce risk and find a home for grain off the combine!

[errolanderson]

That's a disadvantage of put options
with a broker is that it doesn't reserve
delivery off-combine . . . especially in
years of heavy supply.

According to Reuters survey, Cdn canola
production may be around 16 million MT,
up 13% from a year ago. Also, Oil World
stated that canola production may
outstrip demand this year . . . time
will tell.

[mbratrud]

Errol, John,

What I like Errol strategy for harvest delivery where there is significant basis risk in this rising market. Back in 08 we seen Basis soar to 40 - 60 under. Could that happen again?

I drove Weyburn, Regina, Stoon, Battleford, Wainright, Tofield, Camrose, Wetaskwin, Red Deer, Calgary, Brooks, Swift, Moosjaw. Last weekend, there is no dought there is alot of yellow but we all know that. The Yeild potential on that drive actually surprised me though, we are looking at an average crop. There are certainly areas that are fantastic, but many areas that needed rain 10 days ago. trend yield at best.

Even with trend yield and the acres delivery preasure will be high at harvest, and basis risk is significant during the harvest period.

Both options laid out are good depending on at the money premiums. but I think I would sign basis with put.

DDC with Call option or Put with Basis tied up both really good strategies if you don't mind coughing up the premium.

My 2 cents..... For me I am about 30% sold and know this crop is a long way from the bin.