New crop canola

[carebear300]

Well people I am calling on your experteise for a honest opinion. I am kind of new at this canola business and am just sort of getting accustomed to the marketing. Friday I priced 49 tonnes at 7.71 for next november delivery. Was that a good move? How much would it be safe to commit?(per acre in bushels) I think historically it isn't a bad price, and certainly better than the last two years. Sorry to be such a pain with such an elementary question. Really do enjoy all your postings(makes me think)

[JohnKenneth]

fwiw my target's 8.50/bu to start pricing new-crop canola but what does one person know... lots of talk but not a lot of concrete yet on this whole bio-diesel bandwagon.

all in all i think you can't go wrong selling a little bit at this price, assuming it pencils a profit and you've already booked the seed.

[broker]

also, only in my opinion, you should look to start at 10-20% of anticipated production once it pencils out to a profitable price. Too many people wait for the "high" and end up losing money. Once you are over the break even, pick some targets and start pricing up.

[SASKFARMER3]

For me it will 20% for november at 8:25

[craig]

Central Alberta Bids new crop bids over $8.00 yesterday. I have always used $8.00 as a trigger for some production. Other option might be to grap some basis contracts to price later. In the new world of hybrids and consistant 50 bushel yields,$400 gross per acre is attractive.

[chaffmeister]

Here's a thought - first, lock in say 20% of your anticipated production at $7.71/bu ($340.00/t) (Carebear, since you started this, let's use your numbers. I assume the 49 tonnes you sold is only a portion of what you expect to grow/sell.)

Then, sell an equal amount of Nov07 360 calls - notionally they are at $35.90, so let's call them $30.00 to be conservative - and even that may be too high but let's run through the example anyway. (Carebear, since you can't sell 49 tonnes of options, you could either sell 40t or 60t - depending on how you want to approach this.)

Assuming you get the options sold, if the market has peaked, the options will expire worthless and you effectively have sold a portion of your canola at 340 30 = 370/t ($8.39/bu).

If the market rallies further, and depending on how far it goes, you effectively have futures sold for another portion of your crop at 360 30 = $390. Take a basis off that and you get your cash price.

The nice thing about selling calls this early is that there's a lot of time to decay the premium. If canola prices haven't changed much before summer and we have a crop problem and a rally, you have a pretty good chance of buying the options back without a loss.

The tough thing is getting them sold in the first place. (I just checked the WCE website - Nov07 370 calls are showing a bid at $21.00/t...)

But whatever you do, make sure you fully understand what you're doing before you sell options.

[chaffmeister]

Seems Agriville doesn't allow plus signs.
Calculations in previous thread should read

340 PLUS 30 = 370/t ($8.39/bu)

and

360 PLUS 30 = $390.

[cottonpicken]

Or take the nov spot price of 12$.

[SASKFARMER3]

Where is November at $12.00 in the world.

[Zaphod]

Selling calls in a market that is going straight up is a big risk. Make sure you have deep pockets. My opinion is to make a small new crop sale at anything over $8. You can't lose money doing that.

[melvill]

I was at an AB Canola Producers Commission meeting yesterday and I mentioned $8.00 available for new-crop. I didn't get anything but a blank stare from the audience. My suspicion was that I was at Pamplona, not southern Alberta.

Sure enough, I was right. At coffee-break discussion, to a person, they said, 'Eight bucks is too low. I'm not pricing any 07 crop 'till it's at least 8.50'. Yup, it was Pamplona - you know fighting bulls and testosterone-crazed men running in front of them. I'm not sure but I think the people at the meeting were the four-legged part of Pamplona.

[cottonpicken]

Mevil if your in marketing,do you know whats going to happen the day the u.s dollar crosses .80?

[melvill]

Hi, cottonpicken, I know that if the Canuck Buck drops to 80 cents, and nothing else changes, we will have higher Canadian prices for our products. However, that begs two questions:

1. Do we know for certain that the Canuck Buck will drop below 80 cents U.S.?

2. How do we know that, in that same time period, commodity prices, in general, will not have fallen making $8.00 canola a pretty good price?

The answer is, of course, that we don't know the answer to either question. So then, as a risk management, not risk-taking, strategy, why isn't pricing some 07 canola, say 10 to 15% of expected production, at eight bucks, not a good idea? If the market goes up, price some more and raise the average.

[cottonpicken]

The answer is actually some people do know the answers to these questions.
The u.s dollar is on thin ice and once it hits .80 on its index it loses all technical support .A major drop will then occur driving the cando up towards par. and commodities higher.This is what has been happening for the past 3 years.
What is causing the dollar drop?Its deficits for one thing.

[melvill]

Okay, so now I understand you better. You weren't talking about a 80-cent Canadian dollar you were talking about the U.S. dollar dropping to an index of .80 against all other currencies. Is that right?

If I understand you correctly, that would mean that the Canuck Buck would rise in value against the U.S. Buck. If that happens, all else being the same, we'd expect the Canadian dollar value of farm commodities to be lower not higher - even more reason to pre-price some of the 07 canola at eight bucks a bushel.