Grain Farmers of Ontario Bottom Line E-Newsletter for August 19, 2016
 
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July 19, 2016

In this issue:

• Ontario Grain Market Commentary
• Agricorp: coping with stressed crops
• 2016 Research Survey
• Middlesex Conservation Tour
• Good in Every Grain at the CNE
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Harvest cash wheat prices as of noon on Friday, August 19, 2016 are as follows:
SWW @ $177.92/MT ($4.84/bu)
HRW @ $173.18/MT ($4.71/bu)
HRS @ $199.45/MT ($5.43/bu)
SRW @ $185.02/MT ($5.04/bu)


Marketing Education
Options on Futures: Lesson 20: Spread strategies with futures options

One of the negatives to buying options is the cost or premium of the actual option. Each day that passes, a portion of the option which is known as the time value decreases until the expiry of that option, at which time, the only value left is the intrinsic value of the option in question. This characteristic is known as time decay.
 
Buying an out of the money option is likened to walking up a down escalator in the sense that each day that your option does not perform it loses value. To overcome a typical option decay the price of the underlying futures has to move in the direction of the option and surpass the strike price by the premium that was paid, just to break even.
 
An example of a typical purchase would be when a farmer decides to purchase a $4.70 call option on December wheat. The December contract is currently trading at $4.40 and the $4.70 call option is trading at 12 cents per bushel. To calculate the breakeven for this trade, we take the strike price of $4.70 and add the cost of the option. In this case, the strike price of $4.70 plus the 12 cents premium would mean that the December wheat has to trade at $4.82 or higher on expiry to break even on the trade. Anything above $4.72 is considered profit.
 
Let’s now look at another way the farmer could spend the same amount of premium but come out ahead of the last situation. The farmer could purchase a $4.40 call for 20 cents and sell a $4.90 call for nine cents for a total net cost of 11 cents. This would give the farmer the right to purchase the December wheat for $4.40 profit from a move up to $4.90 (a profit of 50 cents) per bushel if the price goes above $4.90 on expiry. Although his profit is limited to 50 cents ($4.90 - $4.40) his breakeven has moved down from $4.72 to $4.51 ($4.40 plus the 11 cent net premium).
 
This example is to show you that by limiting your upside potential you are able to break even and starting profiting from your call at a much lower price.
 
Next week we will explore using this strategy to benefit from lower prices.

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Feedback is important.  If you find this education series beneficial, please contact Marty Hibbs, Grain Merchandiser at mhibbs@gfo.ca.

DISCLAIMER: This information has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by the author, by Grain Farmers of Ontario, or by any other person as to its accuracy, completeness or correctness and Grain Farmers of Ontario accepts no liability whatsoever for any loss arising from any use of same. •
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Agricorp: coping with stressed crops

Agricorp understands that some producers may be dealing with severely affected crops that ​are at risk of not reaching maturity. These producers may be considering harvesting the crop early for silage or green chop. Production Insurance includes options to properly determine the yield of these crops.
 
For details about harvesting damaged or stressed grain corn, visit Agricorp’s publications page for the Production Insurance plan for corn.
 
While harvesting decisions are entirely up to the producer, customers need to contact Agricorp if they're considering harvesting crops early, so an adjuster can visit them and help them through the process. An adjuster can be in touch within 48 hours to make arrangements to inspect the damage and explain how coverage works for each scenario. The sooner an adjuster inspects the crop and explains the options, the better. This allows time to assess the situation and make any necessary arrangements for the crop. Working with an adjuster as soon as possible also ensures more accurate and timely claim payments. •
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2016 Research Survey

We want to hear from YOU! This year’s Research and Knowledge Transfer Survey is now open. This is your chance to provide feedback to guide Grain Farmers of Ontario research direction and to tell us your preferred way to hear about research results.

Every respondent will be entered into a draw for one of five prizes  - prizes include Grain Farmers of Ontario and Good in Every Grain merchandise such as jackets, t-shirts, and camp chairs.

Every year the Grain Farmers of Ontario Research Department conducts a survey to help determine research priorities for the year’s research projects. In the past, the survey has been sent out to Grain Farmers of Ontario delegates and directors; Certified Crop Advisors (CCAs); and OMAFRA specialists. This year we’re opening up the survey to all our farmer-members to get a more representative pool of respondents. Another new addition to our survey is the knowledge transfer component, where we are asking you to let us know what topics you want to learn about and where you’d like to find the information. 

Complete the survey online — its smartphone and tablet compatible! You can also call the Grain Farmers of Ontario office at 1-800-265-0550 to request a paper copy of the survey. Surveys must be completed by August 22. •
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OHL Owners' and Governors' Event

Grain Farmers of Ontario sponsored an evening reception for the Ontario Hockey League owners and governors last night in Niagara-on-the-Lake. The reception was supported by Canadian Club, who is actively promoting the use of local, Ontario corn in their product. Guests were invited to sample Canadian Club whisky and cocktails, while learning about the quality and quantity of Ontario grain used in their process, as well as the flavour profile it provides. 

Grain Farmers of Ontario was represented at the event by Scott Persall, District 5 (Elgin/Norfolk) director, Barry Senft, CEO, Meghan Burke, manager of communications, and Briane Thompson, a farmer-member and retired professional hockey player featured at  www.goodineverygrain.ca/yourfarmers. Many conversations were enjoyed with attendees throughout the evening, addressing questions about this year's crop season. •
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Middlesex Conservation Tour

The Middlesex Soil & Crop Improvement Association hosted a Conservation Tour this week. This year’s tour was held in Glencoe at the farm of Dave McEachren, Grain Farmers of Ontario District 4 (Middlesex) director. McEachren is a long term no-tiller and in recent years has incorporated the use of cover crops on his farm. 
 
More than 100 farmers attended the event which included presentations from Anne Verhallen, soil management specialist at the Ontario Ministry of Agriculture, Food and Rural Affairs, on using multiple cover crop species; Chris Roelands, of Honeyland Ag Services, examining late season nitrogen applications; and a presentation from McEachren on the benefits of building healthy soil towards your farm sustainability goals.
 
Grain Farmers of Ontario was also represented by Steve McCabe, manager of member relations; Nicole Mackellar, manager of market development; and Mike Buttenham, sustainability and environment coordinator. •
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Good in Every Grain at the CNE

Grain Farmers of Ontario is at the Canadian National Exhibition (CNE) with the Grain Discovery Zone this year. This is a great opportunity to connect with urban consumers and answer their questions about grain farming.
 
If you’re heading the The Ex, you can find us inside the Farm Building. The CNE is on now until September 5. •
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