grain marketing strategies 1 - marty hibbs, grain merchandiser
TRANSCRIPT
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Marketing Seminar
FUTURES & OPTIONS MARKETS
January 25, 2017
Ingersol, ON
Marty Hibbs
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Your Marketing Choices
• Cash Sales
• GFO Pool
• Forward Contracts
• Futures & Options Markets
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Purpose of Futures Markets
• Raw Material Hedging
• Buyers and Sellers of raw materials are at risk of price
fluctuations.
• These market participants include buyers and sellers for every
major company globally as well as producers, end users and
speculators.
• This pool of experts pinpoint settlement prices on the world’s
major exchanges.
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Futures Market
Pros
• Easy to enter/exit
• Often better prices than
forward contracts
• Use of Margin (leverage)
Cons
• Fixed quantity
• Some Commissions
• Ignores Basis
Viewed as a temporary lock in for price until physical is
ready to be delivered or purchased.
Each contract is standardized by exchange, quality,
quantity and settlement and may be offset easily.
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Purpose of Futures Markets
• Price Discovery
• Hedge or reduce one’s risk
Buyers Sellers
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..for largest raw materials
Global management systems on the
planet
How Big is the
CME Exchange?
Price Discovery
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CORN 340,500 Contracts Average Daily Volume
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SOYBEANS 245,000 Contracts Average Daily Volume
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WHEAT 123,600 Contracts Average Daily Volume
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CORN WHEAT & SOYBEANS
Just these three grains trade more than
700,000 contracts
every day on the CME !!
Worth an estimated
$20,766,200,000.00 /Day
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CME Total Contract Volume for 2015
The CME traded more than
13.7 million contracts worth more than
1 Quadrillion Dollars
$1,000,000,000,000,000.00
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Futures Contract Categories
• Grains: Corn, Wheat, Beans, Oats etc.
• Meats: Live Cattle, Lean Hogs, Feeders
• Energy: Crude Oil, Heating Oil, etc.
• Softs: Sugar, Cotton, Cocoa, Coffee
• Currencies: Canadian, Swiss, Yen, etc.
• Interest Rates: Treasuries, T Bills, etc.
• Indexes: S&P, Nasdaq, Dow Jones, etc.
• Metals: Gold, Silver, Copper, Palladium, etc.
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Future Contract Specifications
Sym Contract Exch Trading Hours Size Months Tick Value
ZW Wheat CBOT 8:00p.m. - 8:45a.m.
and 9:30a.m. -
2:15p.m. (Sun-Fri) EST
5,000
bushels
HKNUZ 1/4 cent per bushel
($12.50 per contract)
ZC Corn CBOT 8:00p.m. - 8:45a.m.
and 9:30a.m. -
2:15p.m. (Sun-Fri) EST
5,000
bushels
HKNUZ 1/4 cent per bushel
($12.50 per contract)
ZS Soybeans CBOT 8:00p.m. - 8:45a.m.
and 9:30a.m. -
2:15p.m. (Sun-Fri) EST
5,000
bushels
FHKNQUX 1/4 cent per bushel
($12.50 per contract)
MW Spring
Wheat
MGEX 8:00p.m. - 8:45a.m.
and 9:30a.m. -
2:15p.m. (Sun-Fri) EST
5,000
bushels
HKNUZ 1/4 cent per bushel
($12.50 per contract)
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Hedging your risk
Taking a position in the futures market equal and opposite of the
cash market to minimize risk of a financial loss from an adverse
price change.
• If you “hedge,” you buy or sell a futures contract as a
temporary substitute for a cash
• market transaction to be made at a later date.
• management tool used to manage price risk.
Buyer of cash grain = sell grain futures
Seller cash grain = buy grain futures
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Types of Hedgers
• The short hedge, or selling hedge, used when you plan to sell a commodity. The short hedge protects the seller of a commodity against falling prices.
• Farmers, Gold miners, producers raw materials
• The long hedge, or buying hedge, used when you plan to purchase a commodity. The long hedge protects the buyer of a commodity against rising prices.
• End Users, Manufacturers in need of raw materials, Airline companies, Trucking firms, home builders.
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Short Hedge Example
• March Corn futures trading at $3.50
Sell March corn futures at $3.50
March 1st Futures trading at $3.15
Buy March corn futures at $3.15
Profit on futures $3.50 – $3.15 = $0.35
Net profit: $0.35 x 5000 = $1,750.00
This will help offset losses in physical corn
Note: Basis is not included in this example
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Performance Bond (Margin)
Performance Bond (Margin)
• Initial Margin Good will deposit on execution
• Maintenance Margin Demand for adjusted for day to day profits/losses
• Leverage Use of deposit only to secure full contract value.
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Mark to Market
• Accounts are settled each day showing
• Account balances including profits and losses at that point
• Snapshot of Account Balances profits and losses at that point
• Margin requirements for all positions
• Margin Excess including profitable positions
• Margin shortfall including unprofitable positions.
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Margin and Account Calculations
Day Market Action Contract Value Debit/Credit Account Account Balance Margin Position
1 Deposit $1,200 $1,200 $1,200
3 Close $3.90 $19,500 $1,700
4 Close $3.70 $18,500 $2,700
5 Close $4.00 $20,000 $1,200
6 Close $4.05 $20,250 $950
7 Close $4.07 $20,350 $850
8 Close $4.12 $20,600 $600 -$600
9 Deposit $600 $20,600 Deposit $600 $1,200
9 Close $4.10 $20,500 $1,300
10 Close $4.00 $20,000 $1,800
CORN CONTRACT
Initial Margin $1200
Maintenance Margin $800
Sell 1 Dec Corn
@ 4.00/bu2 $20,000 $1,200
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Futures Market Participants
• Exchange The playing field
• Clearing House Settlement agency
• Speculators Looking to take on risk
• Hedgers Avoid risk
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Clearing House
• Responsible for the day-to-day settlement of all customer
accounts at futures exchanges.
• Act as a third party to all trades, serving as buyer to every
seller and seller to every buyer, and guarantor of all contracts.
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Speculators
• Risk Taker
• Adds Liquidity
• Allows true Price discovery
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Calculating Profit & Loss
• Determine contract size
• Determine point value
• Determine points lost or made
• Multiply by contract size
• Add commission to Loss
• Subtract Commission from profit
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Wheat Trade Example
Bought 1 Dec Wheat @ 4.00
Sold 1 Dec Wheat @ 4.45
+0.45
0.45 x 5,000 bu = $2,250 profit – commissions
Sold 1 Dec Wheat @ 4.25
Bought 1 Dec Wheat @ 3.80
+0.45
0.45 x 5,000 bu = $2,250 profit – commissions
Bought 1 Dec Wheat @ 4.25
Sold 1 Dec Wheat @ 3.80
-0.45
-0.45 x 5,000 bu = $2,250 loss + commissions
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Currency Factor
• Wheat Cash Price: $5.00 Bu. (in $US)
• Scenario A) Canadian Dollar: at par 1.00
• Cash Price $5.00/bu ($183.72/mt)
• Scenario A) Canadian Dollar: 0.9000
$1US / 0.90 = 1.111
$5.00 x 1.111 = $5.55/ bu ($203.93/mt) Cash Price
• Scenario B) Canadian Dollar: 0.7000
$1US / 0.70 = 1.43
$5.00 x 1.43 = $7.15/ bus ($262.72/mt) Cash Price
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The True Trend
• Short Term Trends vs Long Term Trends
• Weekly and Monthly Charts ID major Trend.
• Trends usually stay intact for 2 – 6 years or more
• Daily Charts used for entry exit points
• Hourly and minute charts used for fine tuning entry and exit
mostly for day-trading.
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OHLC Bar Chart
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Intermediate Trend Wheat
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Monthly Wheat
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Thank you
Questions?
QUIZ TIME