grain marketing strategies 1 - marty hibbs, grain merchandiser
TRANSCRIPT
Marketing Seminar
FUTURES & OPTIONS MARKETS
January 25, 2017
Ingersol, ON
Marty Hibbs
Your Marketing Choices
• Cash Sales
• GFO Pool
• Forward Contracts
• Futures & Options Markets
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.
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.
Purpose of Futures Markets
• Price Discovery
• Hedge or reduce one’s risk
Buyers Sellers
..for largest raw materials
Global management systems on the
planet
How Big is the
CME Exchange?
Price Discovery
CORN 340,500 Contracts Average Daily Volume
SOYBEANS 245,000 Contracts Average Daily Volume
WHEAT 123,600 Contracts Average Daily Volume
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
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
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.
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)
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
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.
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
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.
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.
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
Futures Market Participants
• Exchange The playing field
• Clearing House Settlement agency
• Speculators Looking to take on risk
• Hedgers Avoid risk
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.
Speculators
• Risk Taker
• Adds Liquidity
• Allows true Price discovery
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
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
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
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.
OHLC Bar Chart
Intermediate Trend Wheat
Monthly Wheat
Thank you
Questions?
QUIZ TIME