Canada Markets

DTN 360 Poll Explores Forward Contracting

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:

The most recent DTN 360 Poll asked the question: Does your 2015/16 grain marketing plan include forward sakes of new-crop grain for fall delivery?

Responses were as follows:

-- 33% suggested that they had contracted grain for fall delivery as they normally do.

-- 17% of respondents suggested that they had priced new-crop grain but have either cancelled their obligations or are about to due to the possibility of a production shortfall on their farm.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

-- 50% suggested that they are waiting in order to get a better read on their crop's potential or are waiting for a more favorable price.

Surprisingly, no responses came in for the fourth and final choice, which states "I never price grain prior to harvest."

Of the responses for the first choice, the highest responses came from both Manitoba and Ontario where moisture has proved less of an issue. Of those responses suggesting that new-crop contracts have or will be cancelled, the majority were found in Saskatchewan while a small percentage of Alberta producers also suggested this to be the case. Of those respondents patiently waiting for a better read on their crop or better pricing opportunities, 70% of Alberta respondents and half of both Ontario and Manitoba respondents chose this option.

For many producers who have faced the elements ranging from frost to drought to hail, new-crop contracts could prove problematic unless protection from an Act of God Clause exists, normally tied to special crop production. For example, the November canola contract has rallied $100.10 per metric ton between the April 17 low of $432/mt and Thursday's close of $532.10/mt, while prices may soon be knocking on the doors of resistance. An event such as Friday's USDA report could be just the catalyst to spark such a move, while at the same time, increasing the potential losses for those already contracted and facing a production shortfall.

There are a number of sayings from the world of futures trading which describe this situation, but one that comes to mind is "cut your losses, while letting your profits run." As James Dines states in his book Mass Psychology, "take losses quickly, profits slowly." My mentors in the grain trade promoted this philosophy: booking losses is never fun but can be far better than remaining exposed in a market which can move quickly and add to losses.

Thanks to all who responded in this and previous polls. This week's poll focuses on the notion of changing governments and potential shifts in ag policy which may arise. Is this scenario a risk or an opportunity? You can respond to this week's DTN 360 Poll which is found at the lower right of your DTN Home Page.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

(SK)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]

Comments

To comment, please Log In or Join our Community .