b'ASG: Can those futures market spreads be comparedASG: Are there some other pricing alternatives that a to a calculated carrying charge?producer can use? NB: Yes, one can estimate the commercial cost of carryingNB:A producer with a futures account could sell futures in canola. Using the 60-day period of January to March anda forward delivery month to capture carrying charge. This applying a commercial storage rate of $0.12 per tonne per day,strategy would retain the ability to shop among the various 60 days storage totals $7.20 per tonne. At $462.10 per tonne forcanola buyers for the strongest basis level. Also, it would avoid January futures and using a four per cent annual interest rate,the physical buyer commitment of delivering No. 1 canola when the interest cost of carrying that canola would be $462.10 perquality may be uncertain. With this futures strategy, usually the tonne x 4%12 months x 2 months = $3.08 per tonne. The sumfutures hedge is removed when the canola pricing is completed of calculated storage and interest costs is $10.28 per tonne. Thewith a physical buyer. Meanwhile, while that futures position is insurance cost is relatively minor.held, the carrying charge will erode out of the market, adding So, if the canola market was trading at full carry withpotential profit to the futures trade.January canola futures trading at $462.10 per tonne, March futures would be trading at $472.38 per tonne. In this example,ASG: What about using the options market?with the actual March futures at a $9.50 per tonne premium toNB: That is another alternative. One could buy a put option for January futures, the March futures is considered to be trading ata forward delivery period. If the futures market falls during the 92 per cent of full carry (9.50/10.28 x 100). A futures market forperiod that the option is owned, then the option will likely gain a storable commodity that is trading near full carry is implied tovalue, capturing some of that carrying charge in the futures be well supplied relative to demand.market. Buying an option has the trade-off of having to pay a premium for the price insurance, but will not require margin or ASG: What does that carrying charge mean to aincur any margin calls. canola producer holding unpriced canola in storage? NB: It means the futures market is offering the producer a feeASG: In summary, then, a carrying charge for a to store canola, but that storage payment is only collectable ifstorable commodity reflects the amount of storage the producer takes some form of forward pricing action. As timeand interest that the market is willing to pay.passes, that carrying charge erodes out of the market. NB: Yes, and although a carrying charge market is a sign the market is well supplied with product relative to demand, some ASG: What contracting alternative is there to captureof that carrying charge can be captured through proactive the carrying charge?marketing.NB: Crop buyers may have several contract types. A deferredFor more information on these strategies: delivery contract is the most common one to consider inNeil Blue, Provincial Crop Market Analyst with Alberta capturing the carrying charge by forward pricing with a buyer ofAgriculture and Forestry physical canola. Those forward prices, the result of futures pricePhone: 780-422-4053minus basis levels, vary among canola buyers. To judge theEmail: [email protected] price, producers should shop among the various buyers for Marc Zienkiewiczthe best farm-gate equivalent prices for those forward delivery months. One can then determine how much of the carrying charge within the futures market is being passed along in those forward cash market bids. Spring 2020 59'