Canola 2007 Risk Management... The AUSIE Experience 2006

[cottonpicken]

Lifer i dont think you have a clue about risk management.Those aussies who dont have a crop or income now have to come up with money to cover their canola positions.Do canada savings bonds sound good to you-save, secure 5.5% interest no risk right? But what if inflation is running over 7%(which it is).Things are not what they seem and what you think is safe is not and what you think is dangerous is not.Your right on one thing though it has been "pointed out" how to risk manage on this board,but personally i'm more of a put all your eggs in one basket,and watch that basket, type of guy.

[craig]

CP I don't understand yor logic. I have a standard marketing rule that anything I deliver in the harvest period for cash flow purposes is priced before harvest.Obviously that doesn't apply if the numbers don't work but the majority of the time I do much better than just dumping crop.

[Lifer]

CP I don't know all your risks. I know a lot of mine and am open to learning more because I don't know everything.

The aussies seem to have made a mistake. Once a plan is made one does still need to be open to making adjustments. How many people in 2002 with presold or hedged positions in Canola had to buy them out? I used a futures position with a prearranged basis and was able to exit with little damage to my bank account and my relationship with my customer.It was a good learning. A strategy built on 7 out of 10 years is better than on a one in 100 year drought in my opinion.

I think that not having a market or customer lined up is a big risk. I also think that working together with this customer whether it is a big scary company or my neighbor is a better approach for me and my family.

I will minimize the amount of crop I grow on spec. I still need to manage my agronomic risks though.

I also think that investing in myself or family enterprises will have better payback.

The closer I can get to an end customer the better opportunity there is.

[TOM4CWB]

Lifer;

You are right on.

Our farm's experience is much like what you have expressed.

CP's risk management strategy for a large grain growers is a VERY HIGH risk strategy... IMHO.

[Lifer]

How much different is the Australia experience of using WCE canola futures as a hedge than this years CWB fixed price contracts?

[cottonpicken]

So all this froze 04' wheat i'm stilling sitting on was a risk because i didn't sell?Or was the really risk selling at those ridicuolusly low prices?I would say my perspective is different because i think/know that we are about to have once in a generation super spike in prices and selling one year out in these conditions is WRONG no matter what spin you want to put on it."risk managemet" is almost an oxymoronic statement when applied to farming.It's the riskest business to be in.As for canola-do me all a favor,go to barcharts.com,goto soyabeans,go to the monthly charts,consider what has happened in wheat[goto the monthly wheat chart if need be],now ask yourself are we going up or down.Is the risk selling or waiting?

[Lifer]

In hindsight the largest risk with your frozen wheat was having it freeze (this being all I know about your 2004 wheat). I also assume you did everything you could to limit this risk.

I do not "know" that we will have the price opportunity you tell of. I gather the charts are telling you this. I thought that charts were one part of the equation.

What I do know is my major costs for next year, my 5 year average yield. I also know that crush capacity is increasing, major food companies(Mcdonalds, KFC) are using canola more, and I have customers that want to work with me.

I am unclear as to everything that contributed to these price changes.

I am reluctant to hedge or price 2007 Canola at this time. I am unclear what basis will do and am reluctant to commit at the levels talked about.

Nov 2007 at $360 is a profitable position (even with a $20 basis)for my farm. Why not hedge a percentage now though?

[cottonpicken]

You havent heard of the frost of 04?
The charts are a very small part of the equation,fundamentals are way more important.As far as forward selling do it i dont want to change yours or anyone elses mind anymore.The fundamentals i spend my days pondering have never been mentioned on this site so i'm not going to bother talking about them.But one thing is true -when oil was 27$ i posted it was going to 50 and everyone thought i was crazy, when the canadian dollar was .67 i posted it was going to par and everyone thought i was crazy.The factors that drive our markets are infinitley complex and tough to understand.Not everyone can be a Buffet and not everyone can be a mechanic AND I AM ONE SH#TTY MECHANIC. But i do understand macro economics.
You never heard of the frost of 04?

[Lifer]

"The frost of 2004" affected area I am in. I can't remember how wide spread it was. We lucked out with very little damage and ended up able to move all of our wheat in the CWB grades. This in part because of the varieties we grew.
You had wrote to luck at the charts. I couldn't see how this supported the conclusion implied that the market was going way up. What I did see was the Nov 2007 and 2008 Canola price was in a high range relative to the monthly chart.

[rainman]

CP, where is the best place to look for basis levels from the past and other market indicators on canola?