Im not the smartest chisel in the set need help with option strategy

[malleefarmer]

Currently wheat prices port based $230 per tonne standard wheat nov to jan delivery can lock in now.
Basis is 36 cents a bushel over Chicago was as high as 50 cents over a few weeks back.
Current futures price today was dec 435 cents.

So I can lock in $230 done deal, or I can buy a dec call option which expires on 26/11/16 strike price of 450 cents for 14 cents a bushel or $7.08 per tonne Australian.

So sometime between now and 26/11 futures rally to say 460 cents im in the money 25 cents less cost of premium 14 cents so ive ahead by 11 cents.

Reason for these thoughts is Australia is talking 28 to 30 million tonne crop record yields and the year has got that "feel" about it.

Now if we do produce this crop futures may well rally to 460 for whatever reason but I doubt I cash prices will rise due to shear tonnes and weakening basis.

Also my average yields are 1.5 to 1.8 but if im going to get 2.6 maybe take the money at harvest before price collapses gross margin per acre is still ok but once all farmers think the same say 3 weeks into harvest prices will plummet.

Other btos I know and respect made good forward sales at 290 to 320 more assured areas and yield is known they forward sell 2 years ahead which you can do in australia with deregulation sold this years 2016 harvest in april 2015, any way they are going to use the same option strategy but the going to wait till prices fall even further absolute bottom and get a cheaper stike price. personally id be happy with 300 per tonne.

ps im not a bto if you think I was being boorish and obnoxious.

ive used options 3 times in my life 2 times expired worthless other time a small profit $4 per tonne once costs deducted hardly worth it.

Selling straight futures had some luck but margin calls risk etc again only done when I though it was a no brainer.

cotton errol anybody point out faults in my theory and hope you understand it or is do nothing and suck it up a idea? I cant see prices getting out of the slums any time soon other than odd unexpected rally hence above idea could come and go in matter of days

yeah yeah I know my posts are as interesting a synchronized swimming

[SASKFARMER3]

My luck was exactly as you described. So Im not one to answer the question.

[farming101]

Don't take any of these as my suggestions for what you should do but here are a few things to think about:

You have set your window to close in November for a hope at a profit. (not that far away)

Your idea has a low risk cost but also your target price for exercising your option is fairly low profit.

Is there a good reason why wheat (or corn which will influence chicago wheat futures) will rally?

Seasonal charts show wheat does rally in the fall, corn does not.

Is there a good reason why wheat might go lower?

[BreadWinner]

Hi Mallee, I think options are overpriced and are a poor tool for speculation. I think used as a price floor setter when futures prices are high are a good use of put options.
When prices are low you might be loosing more money by selling cash wheat and also taking the cost of the call option off that giving you less in your pocket. Finding the best price and basis is what you might have to be happy with.
If you want to stay in the market you sell for the best price and take a futures position and hope for a rally. I cant see them having much more downside so not much risk.

[blackpowder]

Some would argue that you're reowning buying calls after selling physical which leans closer to speculation than to pure hedging. Whatever. Insurance costs money. Spreads lessen your cost.

[macdon02]

85% of options expire worthless. Having said that I agree with 101, seasonally we rally. The other issue is gonna be currency and the US election, I'm gonna say USD up if Clinton wins. ...... there's also German and French elections in the new year so euro might go to shit. Just something to watch, looks to me like AUD is coiling Can move to .735ish and still remain in pattern, lower, look out. I'm looking for $5.60 Dec minny

[malleefarmer]

thanks just trying nut things out maybe do nothing is best.
always used to store for domestic market but milk industry is in crisis here and big traders cargil adm etc supply feedlots and piggerys at almost a loss it seems
See yesterday I think Romania or the likes is in record yield territory as well.
With Russia’s inability to store a very large wheat and corn crop, they will remain the low cost exporter on the world stage.
Competitive pressure out of the Black Sea may be exacerbated as there is talk that Russia will remove its Export duty. Which must be tax farmers pay to govt???

Put your buyer hat on were is someone that both Canada and Australia sell to perhaps eygpt well there just gonna wait and buy hand to mouth and observe things drift lower

[malleefarmer]

our dollar currently around 76 cents and unfortunately pegged to move higher hurting farmers and miners and supposedly our govt spending heaps to keep it down