Tuesday, February 24, 2009

Mail call...

Help me out with this one, guys.
Dear John

 I am the young long blonde haired farmer, who works part time in Australia for a Grain Marketing firm (check www.marketcheck.com.au), and whom you met at Farm Tech, Edmonton, Canada and enjoyed a beer with.


I have been back in Sydney Australia (due in part to deregulation and as such growers/traders requiring our services) buying and selling grain, as well as sending and receiving member grain surveys to determine what grain stocks are out there. In addition, as growers are closing out their CBOT Mar 09 positions which was hedged against their old crop, my new task for the next week is determining what are our growers going to do with their 2009 crop. We Australians have received some early excellent subsoil moisture in northern growing regions, which means that at least we will have a crop in that area. In addition, our basis has really firmed up these last couple weeks for our high quality wheat's. CBOT has fallen, while our domestic bids for physical grain have gone up, with bids for APH2 (equivalent to Canada's CWRS or Minneapolis at 320AUS/mt delivered Newcastle. In addition, the prices for grain in easternAustralia have surprisingly become stronger than prices in Western Australia due to the fact that shipping stems are plugged in Western Australia.  One of the reasons why grain prices on futures ie CBOT have stayed as firm as they have is due to the fact that investment funds  (Index Funds)   took in some money in at the end of last quarter 2008 as people invested in soft commodities due to the outlook being better than bank deposits and shares. But slowly speculators, as well as the fund managers, have been pulling out of their long positions and having to sell, as they are slowly realizing that Ag commodities are not immune to the global credit crunch. As such, we believe growers need to think now about what to with their 2009  crop, they are about to put into the ground, before as we believe, prices drop.

I hope you can help me in answering the question "What are we (growers) going to with our new 2009  crop?" in addition...what is the "American grower doing to protect himself against price risk" and in addition "what is American Basis doing?" ...is "CBOT or even Minneapolis representing local prices?"

Good Luck on your Farm this year and Regards,


My answers so far:
1. What are we going to do with the 2009 crop?  Stand in stunned paralysis while prices plummet.
2. What are we doing about risk protection?  Some will be buying very expensive options, a few will forward prices a little grain, most of us will be praying a lot.  A bunch of non-economic crop insurance will be bought.
3. What is the basis doing?  Tightening up considerably but unevenly depending on your immediate buyers.
4. Are the CBOT and MGE reflecting cash prices?  Well, they are not totally disconnected, but I no longer am surprised when they march in different directions.

I try to avoid giving marketing advice, so if you have better answers for this young man, please chime in and post in the comments.

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