Episode Transcript
[00:00:00] Speaker A: Today we're talking about what's really moving the markets. It's been a little spicy here. I do want to give a quick shout out to this week's cup of coffee sponsor, Egg i3.
Great opportunities to lock in profits on new crop canola are out there. You can be aggressive on your Forward contracting with Egg i3's Forward Protect Insurance that protects you in case of a buyout.
[00:00:24] Speaker B: Intrigued?
[00:00:24] Speaker A: Check it out at ay3ai. All right, folks, we've got some big moves happening in the markets here. I'm going to refresh because it Canola is up about 20 bucks a ton here. Yeah, just over 20 bucks a ton. The May contract trading at 7:23 and change.
November canola is currently trading at 7:19.
We've got soybeans up only 4 cents. Soybeans currently up half a cent at 11:56. So a little bit quieter on that one. Bean oil, pardon me, gaining traction as well, up a penny and a quarter at 65:15. And then we've got cereals on the decline this morning. Kansas wheat down 9 cents at 607. Spring wheat down 6 cents at 6.28. Corn down half a penny at 4 53. Crude oil, West Texas up about a dollar a barrel, 94.76. And the Canadian dollar slightly lower at 73.
[00:01:20] Speaker B: 70.
[00:01:22] Speaker A: Now for headlines, we've got, well, Trump's call to action. He wanted to create a joint coalition to provide safe passage for vessels in the Strait of Hormuz. That seems to be gaining very little traction. Not getting a lot of positive vibes out of that one right at the moment. Trump has also requested a delay to his meeting with Xi in China. Wants to delay that by a month or so.
And that along with, I don't know, quieter Middle east war news, led to a pretty aggressive sell off in soybeans. Bean oil both traded limit down yesterday. Canola went along for the ride. Bit of a passenger at the moment, but went along with the craziness of yesterday. And yeah, now on the flip side, we're up 20 bucks today and I wonder if it's because the EPA is going to make an announcement here on on RVO on some biofuel policy. And Trump is inviting some key biofuel industry folks, farmers as well, to a event on March 27th. So I wonder if that's providing a bit of a boost here to canola and bean oil for your Tuesday. Of course, wheats are under pressure.
We have a rain event in the schedule here for March 30th. That's how it works, right folks, you schedule Your Rain Events March 30 Eastern Kansas, Texas, Oklahoma, all expected to receive some rain. And with that we've got cereals, wheat markets down a little more, a little sharp this morning, down about a dime.
It is possible to have war events going on but also have to watch weather and watch biofuel policy at the same time. For some reason the market's nice and tricky for us and wants us looking at many, many, many different things. Now we've got a bunch of questions that came in over the last couple days here and a couple of carryovers from last week as well. I did get asked thoughts on Durham, you know, if we were turning a bit bullish on Durham and unfortunately this came in from Sheldon. There's not a lot of, not a lot of positivity around the Durham market at this time.
I did message Chuck Penner for some information here this morning because I, I, my Durham skills are not as sharp as some of the other folks in Western Canada.
But Chuck says there can be a seasonal bump here in May or June, but it's pretty small. And he said, you know what, there are good conditions at the moment in North Africa and no concerns in in Europe either at this time. So for Sheldon, for you know, looking at that, the Durham market itself, maybe a little bit of a seasonal bump here in price but not a lot expected.
I just browsed a few bids yesterday in the eight dollar range and that's been pretty, pretty normal. Now Shelton did ask, can you price lock in Durham like just a basis. Could you do just a basis contract? And I actually, I don't think you can. Sheldon. I think you were bang on in your comment, I believe and I if I'm wrong here, someone will correct me and I will dig into this just to confirm, but I attempted to do a basis contract last night to see if I could do it on Durham and I couldn't. Now that's just one company in one scenario. But because there's no futures traded, I'm assuming that you have to lock that in as a, as a net price. All right.
Now we did get a question come in on the chat here from Wheat King.
Heck of a great name, a great handle. But thanks for doing what you do. Love the info. Keep, keep the eating your veggies segment. You caught that. Hey, I was teasing about maybe removing that on the Friday episodes. Does your farm use egg i3 or gars? Yeah, you know, great question. We do get quotes from both organizations. We also take Saskatchewan crop Insurance and continue to be in ag stability as well. Eggstab, we took egg i3 last year as a top up insurance. We bought about an extra million dollars of coverage just to get that gap between our losses and our in our Saskatchewan insurance potential payout. Try to narrow that gap in. So we did take it last year. We have all the quotes in front of us right now. Haven't made any final decisions as of yet. And then just a nod to forward protect as well with the Lunchbox crew. We met with Egg i3 on Friday morning and we did. Yeah, timely, right. We did dive into forward protect and a couple things that caught my attention was just, yes, it is a premium that you write and you're not going to get that back when you I insure my vehicle. You know, we wrote that check. We're not going to get anything back unless something terrible happens. But the cost of entry to protect against a buyout was less than half of a put option. So that's what kind of caught my attention. That's why we had the meeting on Friday with the Lunchbox crew. Spring wheat and canola is. That's what they're looking at there.
Mr. John DePape, how are you doing this morning?
[00:06:47] Speaker B: I am very well, thank you. How are you?
[00:06:49] Speaker A: I'm good. The kids didn't sleep well last night. But you know, the coffee will, will provide that little extra boost for me. So John, I need to ask. So let's pretend that yesterday, when were you on the trading floor in Winnipeg? Like in your heyday?
[00:07:04] Speaker B: 88 to 93.
[00:07:07] Speaker A: 88 to 93, yeah. So let's, let's go back. It's like, let's pretend it's like 1992 and you have an event like yesterday. What is happening on the trading floor at that moment?
[00:07:21] Speaker B: Well, it's funny, you know, beans were limit down, locked, limit down. Oil was locked, limit down. We didn't quite make it there, as you said in your preamble. We kind of just went along for the ride, which is typical for.
But had we gotten locked limit down.
I've been there many times when that's happened and the place starts to smell like a locker room.
Guys get worried. Well, they get caught in the wrong side.
But in a day, like typically a day, you get activity in the morning, right at the opening, hedges come in, that kind of thing. And then at the end, at the closing, because that's the price that they're going to do business overnight at.
But in between, it can be very, very quiet on a day like yesterday we'd have some pretty good activity all day long.
But, you know, now it's a computer game and I think you have pretty good activity all the time anyway, so
[00:08:16] Speaker A: would there have been any, like, aggressive language or like, would have it gotten, like, heated at all in there? Not really. They got heated sweat wise, but you
[00:08:27] Speaker B: could get fined for swearing. So the language is pretty, pretty good. But you could get. I've seen guys get pushed out of the pit.
I got pushed once off a spot I like to stand on, so I pushed back. And actually, funny story, I walked into the feed grain pit and wheat was offered, and I said, who's selling wheat? No answer. So I bid for it, no response. So the price changed it from an A to a B beside the price. And this guy came walking in and he said, who's bidding for wheat? And I said, I did, I am.
And he came up to me, pushed me. He offered it and I pushed him back because it didn't happen at the same time. But then I saw him coming toward me with his fists and two guys were holding him back. And then I realized that somebody else was holding me back too. So.
[00:09:20] Speaker A: Wow.
[00:09:21] Speaker B: It could get physical.
[00:09:22] Speaker A: Right now we just get physical with our computer monitors. All right, so you have an app called the Trading Floor.
Well, it's a website as well, but the Trading Floor, it's been hot the last few weeks. You have great contributors on there. And. And I watched a webinar last night that you hosted on the Trading Floor about your advanced grain pricing strategy.
Do you want to just talk about that for a second? I. I found it really interesting with you and. And David Derwin going through the.
The transparency around that program.
[00:09:53] Speaker B: Yeah, sure. It was an idea I came up with a number of years ago that, you know, from my cash trading days. I know that spreads and bases are really important to a grain trader, but we tend not to teach that to farmers. And I've been involved in teaching ever since I worked for the Commodity Change back in the day. And we never really taught them that. So I thought, well, I'll teach them. But then it takes time and dedication. And so maybe what I'll do is I'll do it for them as well.
So I would put on workshops, explain how to do it, because you could do it yourself. You don't need me.
But then. But here's the offer. You know, David and I can do this for you. And the idea is that it started off as a storage place. So once you know what you've got in the bin you've sold and harvest what you need to move. Then we start building a price. So we start hedging incrementally. We earn the carry, we roll hedges forward. That gets a little complicated, but not really. And we have a pretty good sense of where basis is going, because as a castrator, that's what you pay attention to.
And so combination of incremental pricing, rolling the hedges, and really getting toward the top end of the basis range in the year, we do some things on options.
We had years where the net result was higher than any street price all year. You start with average, well, that's. That's better than most. And then you build onto it. And yeah, on a year like this, last year, this year that we're in, we're out already. We guys are still in. They still have their cash canola that they haven't sold, but we've lifted all the hedges, got nothing. And I think it was a decent year. Pretty good year, actually, but good. If there's a carry in the market, this is a great strategy. If there isn't, we back off a little bit. We've got some other ideas, but that's what it is. It's basically to trade grain or hedge your grain. Like a grain trader. Yep.
[00:11:46] Speaker A: There's a bunch of tidbits in there. We might have to do a separate episode on the whole thing. Get David to join us as well. I've been a little bit frustrated with basis both on wheat and canola.
You've been putting some commentary in the trading floor about these two.
Where do you want to start? Do you want to start on wheat basis? What's going on? Like, why am I. Why am I getting. Every time I look at the screen, except for yesterday, it got better yesterday.
Like, what's going on? It's frustrating.
[00:12:15] Speaker B: Yeah, wheat's a funny animal. And, you know, you go back to 2012, when the wheat Board got out of the way, everybody jumped into the wheat market and they were trading Minneapolis futures. And it worked real well until about 2013. 14, the year later. It's a bit of a story, but that's the year we had a huge crop and the railroads dropped the ball and didn't. Weren't able to move at all. And if you remember, Jerry Ritz finally came in. He was Minister of Ag at the time, Came in and said, hey, railroads move 10,000 cars a week or else. And I don't know what the or else was. And he didn't say where it had to be shipped from or to so basically, he handed the railroads the keys to the kingdom. They picked the quickest return or cycle times.
Middle of Saskatchewan, Alberta to Vancouver, they cut off shipping to eastern Canada and to the US So here you have grain companies full of wheat hedged and some of it destined to the US and all of a sudden they're not shipping to the US So we basically shorted that market. And Minneapolis futures inverted. And here you have hedgers that rolling a hedge forward in an inverted market, it's going to cost you money. And I've noticed that following that year, the basis started to act funny. And I think that that's what it was. They just said, well, we can't use this futures market.
[00:13:42] Speaker A: Okay?
[00:13:43] Speaker B: I think they don't.
And the other thing about foreign exchanges, you don't want to book your foreign exchange when you buy grain. You book your foreign exchange when you sell the grain gets complicated. But that's the textbook way of managing your forex is when you sell the grain.
So where they buy grain, buy wheat and hedge it or not, there's foreign exchange risk, sort of, but they're not.
They could hedge it, but it gets complicated.
And so I think what they do is they say, when we sell wheat, we'll book the forex, we'll go and book the cash from farmers. And that's why the basis is never really attractive until they need it. And it's really frustrating, but I think it's, it's a function of the foreign exchange and the illiquidity. Illiquidity in Minneapolis.
[00:14:31] Speaker A: This is not a isolated event. We've been talking about it on the show for, for two years. So, yeah, you might be onto something there because this is not just happening now.
[00:14:40] Speaker B: No, it's been like this for a while. And if you want to talk canola. Canola basis is lousy because I think Brian Cuomo said it last week, futures are doing the heavy lifting.
The futures are going into taking the market into targets, even soft targets, like guys say, well, if it hits 15 and a quarter, I'll sell it without a target contract.
If you're going to hit those price ideas, why would you lift your basis? There's no need to.
[00:15:06] Speaker A: Yeah, yeah, you've got a, you've got a nice little. I don't know if I would call it like a heat map, but a nice visual of, of the basis position, you know, crusher basis across the prairies. I'm finding that quite, quite handy. I've been, you know, talking to farmers saying, you know, book futures, you know, November futures, January futures, you know, be a bit patient on basis. I'm getting a lot of pushback. Am I out to lunch here? Am I thinking, you know, incorrectly on, on the strategy of letting time happen and, and looking for a basis appreciation or improvement?
Yeah, I'm getting a lot of pushback. So what am I missing?
[00:15:44] Speaker B: You got to separate the year between harvest.
Well, you have to move because of cash or something, space and what you do afterwards. And when it comes to harvest time, you know, guys are getting 15 bucks a bushel plus for, for canola. Lousy, lousy basis. But I'm not about to tell them not to do it because you're going to make money, you know, 15 and a quarter or 1550 or whatever they're getting.
And you need to be able to make sure that you, you've got an elevator to deliver to at harvest. So.
But after the fact, after that, I think it makes sense to hedge with futures and weight on basis. There's a true seasonality to basis in a normal year.
This year became abnormal when the market took off. I was telling guys as much as a month ago, lock in your basis because I can't see it getting any better. I didn't think it would get this much worse, but I didn't see any reason to push basis. You got to remember the basis is just the price.
That's all it is. And so if they need to raise their price, it's in the basis. But if the futures are doing the lifting, they don't have to do any of it. So yeah, so I would go along with you for new crop, do what you need to do at harvest and then hold off for later. In fact, I'm working on a strategy now where if you're liking the price at harvest, it means with a lousy basis, that means the futures are pretty decent.
And so if you're going to do that, why not sell some futures as well at the same price, like Friday.
Where's my notes here? 734 with the knob. We're at 722 now. If that's a good price with basis for fall delivery, sell some futures as well for later.
And this is, this is our advanced grain pricing strategy. You sell the November and then roll it to the January and then to the March and so on. This year we were picking up 12 to $13 each time we rolled. Yeah, roll a short hedge in a carrying shedding market, you actually improve your hedge by that amount.
So you could add 40 bucks pretty easily. So you're looking at 7.34 now you're looking at 770, a decent basis. You're looking at 17 bucks a bushel for later.
[00:18:05] Speaker A: Yeah, nothing wrong with that, John.
[00:18:07] Speaker B: You know, you wait and do nothing. That's like you're. They say you're buying time, right. If you're just waiting, I call this selling time.
[00:18:17] Speaker A: So John, I'm going to ask you a loaded question here on Canola. We had obviously the big down move yesterday, big up move today.
How you feeling about this, this market? Are you, are you, you know, optimistic and excited about the next couple of weeks here? Are you thinking it's time to be a bit more defensive or.
[00:18:38] Speaker B: Yeah, yeah. A while ago, within 10 or 20 bucks of this, these prices, I said for new crop, these prices are a gift.
Foolish not to take advantage of it.
Where it goes from here, Ask Donald Trump. You know the market, I see these markets as very fragile. Obviously if we can go almost limit down yesterday and now we've brought it all back today simply because I heard yesterday it was because Trump had said he wasn't going to meet with the Chinese Prime Minister.
Now the market seems to be ignoring that. So fragile is the word I'd use.
Are we going higher? I have no idea.
We're looking at advanced grain pricing. We're looking at locking in a floor price, using some options. We don't want to sell futures here because it could go crazy still. Yeah, yeah. This to me is perfect time to use options. There's enough money in there that you could spend, spend some money on options and, and that's how we're going to enter this year with.
[00:19:47] Speaker A: Sounds good, John. Well, I do appreciate your time this week. We are getting up against the clock here. So folks, overall it's gut check time for your crop marketing plan yesterday, you know, a bit of a wake up call to get serious about your crop marketing plan and your strategies. The strategies that you need to be prepared to execute on, you know, the well thought out strategies.
Take time to focus on those here as soon as you can because obviously when days like yesterday happen, you want to be prepared with, with some type of plan.
[00:20:22] Speaker B: Plan.
[00:20:23] Speaker A: All right. You never know when a Monday is going to happen and it was a heck of a Monday.
All right folks, big thanks to AGI3 for sponsoring the month of March here on cup of Coffee. You use precision tech in the field. Why not in your risk management? AG i3 uses advanced data to build custom insurance layers that protect your yields and now lock in your revenue. Upgrade your Strategy today at agi3ai. That's the website there. Agi3ai.
I'm out of coffee. John, from the trading floor, thank you so much for joining me. Really appreciate your perspectives. And, John, we will see you later this year in Brandon, Manitoba.
[00:21:07] Speaker B: Yes.
[00:21:08] Speaker A: All right, folks, again, thank you so much. I'll see you Friday on what the Futures.
