My Conversation with John De Pape

[jdepape]

John.
Am I wrong with my theory regarding if all farm sales were in the middle of the year's range; it wouldn't cost the end buyers any more than it does now? Stretching my brain a little and didn't want to be full of scat.

To a great extent price is a function of the amount of farm sales and deliveries relative to demand. Seasonally, price tends to be worst in the fall. Basis for sure is worst then. All because farmers tend to sell and deliver more then, pressuring prices. So if less was sold for harvest delivery, then prices in that period would be supported.

But - end use buyers aren’t necessarily buying when farmers are selling. In a way, their pricing is somewhat independent from farmer pricing. Thanks to futures, hedging and speculators.

I guess the biggest impact from better farm selling would be merchandinsing challenges for the graincos as they would lose opportunities due to decreased basis appreciation and tighter spreads (carrying charges).

[Landdownunder]

im probably oldest guy on here dont miss single desk one iota. And all the cloak and dagger stuff being released after privacy has expired tis all basically what everyone knew. Nobody cares now done and dusted doesnt get raised here at all even by die hards

[LEP]

I am still wondering where the extra profit is coming from. Perhaps the grain companies will give up some of their profits so these marketing gurus can gain more. Maybe they will raise prices to the customer. Perhaps there is a new math that you have discovered where 2 plus to equals 5. I am not saying some could gain but that gain has to come from somewhere. Also could you explain the 25 a tonne extra compared to who?

You do realize that futures are traded by more than just grain companies and farmers.

[jdepape]

I am still wondering where the extra profit is coming from. Perhaps the grain companies will give up some of their profits so these marketing gurus can gain more. Maybe they will raise prices to the customer. Perhaps there is a new math that you have discovered where 2 plus to equals 5. I am not saying some could gain but that gain has to come from somewhere. Also could you explain the 25 a tonne extra compared to who?

I missed this earlier. Concerning the "$25/tonne extra" I assume you are referring to my comment about rolling hedges and picking up the carry.

Here's a real life example - I earlier hedged in the Nov at $704.00, then I "rolled" that hedge to the Jan when the Nov/Jan spread was $13.50 under (Nov was 13.50 under the Jan). That means my hedge is essentially at $717.50 in the Jan. And I am looking at rolling my Jan to the Mar - I think I will be able to do that at 13.00 under. If I get it done, my hedge will essentially be $730.50 in the March.

Every time I roll short hedges in a carry market, my hedge improves - I earn the carry.

In this example, my hedge will have improved by $26.50 already. But I have more to hedge so for later sales I will not get as much carry on them (fewer months to roll). An extra $25/tonne this year is pretty conservative.

Make sense?

[farmboy44]

DePape you have given this discourse way more time and effort than it deserves, appreciate what you do but it may be a waste of time trying to convince some to turn against what is their religion.

[jdepape]

DePape you have given this discourse way more time and effort than it deserves, appreciate what you do but it may be a waste of time trying to convince some to turn against what is their religion.

I enjoy a good argument. Just ask my wife!

[agstar77]

You do realize that futures are traded by more than just grain companies and farmers.

So that would be independent grain traders like you a, commodity funds and end users? That would mean any free capital above the receipts from grain would come from these players. In other words gamblers.

[blackpowder]

Gamblers are fools.
The number of contracts exceed the number of actual bushels by a multiple. Spreads, options writing etc. And yes, speculators.
Who tells you what your product is worth without liquidity?

I don't want to misunderstand you.
Could you elaborate your concerns?

[agstar77]

I don't necessarily disagree that a price discovery and hedging system is necessary. Is it necessary that producers need to participate to insure a return on investment? Should this not be a stand alone system ?

[LEP]

I don't necessarily disagree that a price discovery and hedging system is necessary. Is it necessary that producers need to participate to insure a return on investment? Should this not be a stand alone system ?

Your bottom line is derived from the futures market whether you trade them directly or not.