Farmers urged to form canola selling strategy

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Published: January 25, 1996

EDMONTON (Staff) – Farmers should develop a strategy for selling canola and avoid the ‘I’ll-sell-it-when-it-gets-to-$9’ marketing scheme, said a marketing manager.

Errol Anderson said farmers often plan to sell their canola when it reaches $9 a bushel, but when it hits that price, they hold out for more and can end up selling when prices plummet.

“There are lots of tools for lowering farmers’ risk and getting a good price,” Anderson told the Alberta Canola Producers Association annual meeting.

“You have to have targets and when it hits your target you have to be prepared to sell some of your crop,” said Anderson, manager of Palliser Commodities Corp. in Calgary.

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For the next crop, he suggested farmers prebook at least part of their crop now with prices at about $9 a bushel and have a September or November $400 call option. These cost $15 a tonne. If the price goes down, farmers lose some of the call option, but if prices increase, their returns will also increase.

He recommended that more than one-third of the crop should remain unbooked.

Farmers should study marketing options during the winter and map out strategies for the upcoming crop to guarantee a uniform cash flow when the bills come due. Anderson recommended contracting about a third of the crop at seeding, a little more at harvest and having about half left to sell after harvest.

If farmers think new crop canola prices will increase, he suggested signing a basis contract now. But no one knows what a good basis contract will be because of last year’s shift to Saskatoon as the reference point. A safe basis contract is about $6 under the futures price, including freight to an inland delivery terminal, he said.

If farmers have some canola in the bin from last year, Anderson suggested they watch the market closely. He thinks the old canola crop prices are slightly overvalued and may drop. Palm and soy oil prices continue to go down and at some time canola has to follow, he said.

Some in storage

“The demand isn’t quite there because of the carryover crop,” he said. Some analysts estimate about one million bushels of canola are held in farm storage.

The trick is guessing how much of that crop is number one and how much is below the top grade. Anderson said farmers holding a combination of grades should sell the lower grades first.

However, if farmers believe the old crop price will increase and they don’t have much number one left, they should wait. To help manage the risk, he said it’s safer selling the canola and buying a call option.

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