21 st October 2009 Albury

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C

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Commodity Trading for

the 21

st

Century Farmer

the 21 Century Farmer

Th F t

f I i

ti

The Future of Irrigation

21 st

October 2009

Albury

Andrew Woodhouse Phone - 02 9719 8206 Fax – 02 69216253 Phone - 02 9719 8206 Fax 02 69216253 MOB - 0488 198 206

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Introduction

• Australian location zones.

• Marketing alternatives ¾ Forward Contracts ¾ Pools ¾ Pools ¾ Futures markets ¾ Swaps ¾ Options

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Australian Port Zones

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Newcastle Zone

Port Kembla Zone

Geelong Zone P tl d Z

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East Coast Supply

ATA East Coast Australia - 2009/10 - Projected Demand & Residual

Supplypp y QldQ NNSW CNSW SNSW Vic TOTAL NSW TOTAL

Wheat 0.80 2.41 1.59 2.42 2.61 9.82 6.42 B l 0 17 0 40 0 48 0 48 1 45 2 97 1 35 Barley 0.17 0.40 0.48 0.48 1.45 2.97 1.35 Sorghum 1.25 0.45 0.30 0.00 0.00 2.00 0.75 Other 0.20 0.15 0.25 0.30 0.56 1.46 0.70 Total 2.42 3.41 2.62 3.19 4.62 16.26 9.22

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East Coast Surplus/Deficits

Supply is very similar to 2005/06 season.

East Coast Australia Supply Surp/Def 2009-10

0.80 0.40 0.60 0.00 0.20 M T Wht Bly -0.40 -0.20 Qld NNSW CNSW SNSW Vic TOTAL M M Sor Other -0.80 -0.60 -1.00

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“What

can

Grain

Price

Risk

Management do for me”?…

GPRM ill NOT t th b t i

• GPRM will NOT get you the best price every year.

• GPRM is NOT about picking market highs & lows.p g g

• There is no “magic formula” that allows we simple f lk t “b t th k t”

folk to “beat the market”.

• GPRM strategies do not have to end in profit tog p achieve success.

• GPRM is not a toy that you use to

• GPRM is not a toy that you use to “Play the market”.

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Develop a Marketing Plan

Production

Cost of

Risks

Production

Pricing Objectives

C h Fl

_{Market Outlook}

Cash Flow

Requirements

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Marketing Alternatives

ASX o ntracts Contrac t rward C o ts Fo r WAREHOUSING SWAPS

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Marketing Alternatives

=

Contract specifications

Freight Rates Delivery period

Contract specifications

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Forward Contracts

• Multigrade contract.g

• Port Based, so LESS rail freight to local depot.

• All hard wheat varieties and grades* deliverableAll hard wheat varieties and grades deliverable.

• Since deregulation, Grade spreads have become an

important feature when deciding who to sell your grain to.p g y g

• Protein & Screenings bonuses differ from buyer to buyer.

• Deliverable contract = basis risk.Deliverable contract basis risk.

• Canola Contracts

• Port or delivered based location.

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Spot Cash contract

• Contract negotiated AFTER grain has been harvested.

• Usually at harvest time

• Daily contract when contract prices are higher then cash

• To transfer grain out of Warehouse

• Ex farm grain.

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Pools

_Deferred

18 Months

POST HARVEST 12 MONTHS

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ESR’s v’s EPR’s

ESR s v s EPR s

EPR’s = Estimated Port Return

Prices are quoted at Port

Freight charges need to be deducted

ESR’s = Estimates Silo Return

Prices quoted UP country depot Prices quoted UP country depot.

What YOU need to determine when selling to a pool

1. Are prices NET or GROSS of fees. 2. The length of the pool

3. Payment periods

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Contract Considerations

• Each contract manages price risk differently

– no one contract alternative is right for everyoneno one contract alternative is right for everyone

• Different pricing considerations fit l

– profit goals

– cash flow

– taxation

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Futures Market

A FUTURES MARKET IS A REGULATED

COMMODITIES EXCHANGE WHERE

FUTURES CONTRACTS ARE TRADED

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Futures Contracts

TRADEABLE

STANDARDISED

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ASX Grain Futures Contracts

• Trading Hours 9.50 am to 5.00 pm (AEST)

• Track Futures Contracts

• Australian Milling Wheat Newcastle & Port Kembla

(10 -11.4% @..60c per .1%)

A i G &

• Australian Feed Barley Geelong & Portland

Newcastle & Port Kembla

• Australian Canola Geelong, Newcastle, Port Kembla, Portland & Port Adelaide

Adelaide

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Standardised Features

Attribute Advantage ASX Track

Attribute Advantage ASX

Futures Track Market Domestic _{R d} _{d B i Ri k} _Y _Y Domestic Contract

Reduced Basis Risk Y Y

Novation _{Reduced Credit Risk}_{Reduced Credit Risk} _Y_Y 8 Brokered Market _{Market Anonymity}_y _y _Y 8 Central Public

Exchange

Price Transparency Y 8

Clearing Accounts _{Efficient &}

Accountable

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Introduction to Basis

• What is basis and how is it quoted?

• What factors drive basis ?

• Calculating domestic basis & measuring

b i

i k E

l

basis risk - Example.

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What is Basis ?

BASIS =

BASIS

Th diff

b t

A$/ t

h

i

d

The difference between an A$/mt cash price and

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What is Basis cond’t?

What is Basis cond t?

It’s quoted in terms of the parent futures

market.

EG – Australian wheat basis when

compared to CME futures is quoted in USc/bu. ( a

conversion is required)

If the basis calculation gives a negative we use

the term under, if it is positive we use the term

over.

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What Factors Drive Basis ?

BASIS

can be driven…

• Internationally

S

l

d D

d

¾

Supply and Demand.

¾

Transport and logistics cost fluctuations.

¾

Quality differentials.

¾

Government policy.

p

y

• Domestically

¾

All of the above, especially S & D.

W th

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BASIS calculation

1. Futures price 5.20 c/bu (CME)

2. x 36.743 convert Bu - t.

= USDt 191.06 USD/t

3. USD t ./. AUD AUD .9280

AUDt $ 205 88 AUDt

= AUDt $ 205.88 AUDt

4. Local cash price – AUDt $200 - $205.88

BASIS

5 88

$5 88

d

BASIS

= -5.88

OR

$5.88 under

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Basis in a chart

D il QAWMF0 AX QWZ9

Daily QAWMF0:AX, QWZ9 24/11/2008 - 25/09/2009 (SYD)

Line, QAWMF0:AX, Last Trade(Last) 14/09/2009, 213

Line, QWZ9, Last Trade(Last) 16/09/2009 200 4841 Price AUD T 16/09/2009, 200.4841 320 330 340 280 290 300 310 250 260 270 280 BASIS 220 230 240 250 .1234 200 210 24 01 08 15 2229 05 12 19 27 02 09 16 23 02 09 16 23 30 06 14 20 27 04 11 18 25 01 09 15 22 29 06 13 20 27 03 10 17 24 31 07 14 21

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D

ti B i

t

Domestic Basis movements

Newcastle Zone $248

Port Kembla Zone $252

Geelong Zone $254 Potland Zone

$248 $248

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Basis Risk

OCCURS WHEN THERE IS VARIABILITY

BETWEEN THE SPOT CASH PRICE

AND THE FUTURES PRICE.

BASIS LOSSES RESULT FROM

UNFAVOURABLE MOVEMENTS IN BASIS

PRIOR TO A CASH SALE OR AFTER A

FUTURES PRICE HAS BEEN LOCKED IN.

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OPTIONS

PUTS or CALLS

• Bought or sold on Futures exchange

• Can convert to a deliverable contract

• Insurance premium

• You determine the costYou determine the cost

• PUT = floor in the market

• CALL = GMP (guaranteed minimum price)

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PUTS

Put Option

Floor In the Market

6 7

Floor In the Market

Futures Price 4 5 3 4 Pr ic e

Premium / Insurance cost

1

2 Premium / Insurance cost

0

1 2 3 4 5 6 7 8 9 10

Tim e

Daily Market Movement Put position / floor in the market Daily Market Movement Put position / floor in the market

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SWAPS

• Sell /Short on Futures exchange ONLY.

• NOT A CASH SALE.

• DO NOT lock in domestic basis.

• Can be sold in AUD or USDCan be sold in AUD or USD.

• Only protects 1 or 2 components of price.

• Bank pays margin call

• Bank pays margin call.

• At time of expiry or position bought back, you will receive profit / loss and are free to sell

will receive profit / loss and are free to sell grain for cash

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HANDY WEB SITES

• www.cme.com.au

th i

• www.theice.com

• www asx com au

• www.asx.com.au

• www graincorp com au

• www.graincorp.com.au

• www cleargrain com au

www.cleargrain.com.au

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Disclaimer

This data is provided for information purposes only and is not This data is provided for information purposes only and is not intended to be used for specific trading strategies without

consulting Advance Trading Australia. g g

B t di f t d ti ll i l i k

Because trading futures and options normally involves risk, determining the appropriateness of hedging with futures and options can only be made on a case-by-case basis

options can only be made on a case-by-case basis.

All information is based upon data that is believed to be reliable. However, we cannot guarantee the accuracy or

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