21 st October 2009 Albury

33 

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C

dit T di

f

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

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

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

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

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

Marketing Alternatives

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

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Marketing Alternatives

Marketing Alternatives

=

=

Contract specifications

Freight Rates Delivery period

Contract specifications

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Forward Contracts

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

Spot Cash contract

Contract negotiated AFTER grain has been harvested.

Usually at harvest time

Usually at harvest time

Daily contract when contract prices are higher then cash

To transfer grain out of Warehouse

To transfer grain out of Warehouse

Ex farm grain.

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Pools

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

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

Futures Market

A FUTURES MARKET IS A REGULATED

A FUTURES MARKET IS A REGULATED

COMMODITIES EXCHANGE WHERE

FUTURES CONTRACTS ARE TRADED

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Futures Contracts

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

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 RiskReduced Credit Risk YY 8 Brokered Market Market Anonymityy y Y 8 Central Public

Exchange

Price Transparency Y 8

Clearing Accounts Efficient &

Accountable

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Introduction to Basis

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 ?

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)

conversion is required)

If the basis calculation gives a negative we use

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 ?

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

Domestically

¾

All of the above, especially S & D.

W th

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BASIS calculation

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

Basis Risk

OCCURS WHEN THERE IS VARIABILITY

BETWEEN THE SPOT CASH PRICE

AND THE FUTURES PRICE.

BASIS LOSSES RESULT FROM

UNFAVOURABLE MOVEMENTS IN BASIS

UNFAVOURABLE MOVEMENTS IN BASIS

PRIOR TO A CASH SALE OR AFTER A

FUTURES PRICE HAS BEEN LOCKED IN.

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OPTIONS

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

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

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

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

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

l t f th d t

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References

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