Because demand is picking up for our services we can only managed a limited amount of farmers. This is because we have outperformed the Australian wheat pools by more than $150 per/tonne since it started getting involved in wheat in 2004.
In 2007 wheat more than $100 million was lost by farmers hedging grain in Western Australia we had clients with $600 per/tonne as I forecast that high in 2008 twelve years in advance in “Your trading edge” magazine. Clients never lost one cent in 2007/08.
Because of the large funding costs required for futures, options and currency, it isn’t possible for me to get this funding ( example to hedge one million tones would require about 50 million in security per/year) ,therefore the only way to do swaps through the ABC bank will require the bank have the follow information:-
• Copy of the last 3 years financials (including 08/09)
• Statement of your assets and liabities
• Copy of your budget
• Copy of your last 5 years actual
• If there is trust involved a certified copy of the trust (which needs to be investigated to determine if the trust can deal in derivatives)
All this could take up one to two months to get approved. Therefore you need to start now as close off date will be 31st March each year.
My requirements after the above has been approved:-
• Total cropable wheat hectares
• Average yield per/hectare for the last 10 years
• Average rain fall for the last 10 years
• Intend plantings 2010/11 season
• Intend plantings 2011/12 season
You will be required to sign a contract (Nap contract, not a pool) which will state the following:-
• Authorizing Commodity Hedging Co to place swap orders with ABC
• Authorizing Commodity Hedging Co to receive all paper work from ABC
• Signing contract to say these swaps are first available to be used by Commodity Hedging co.up to 50% of the yield.
• Authorizing Commodity Hedging co, to deduct balance of fees from merchant or bank on finisilisation of current season.
• All grain sales to be cash contracts.
Management fees are as follows:-
$3.00 per/tonne, $1.50 per/tonne deposit.
$400-$499 per/tonne 1.5%
$500-$600 per/tonne 3%
The contract is limited up 50% of estimated yield (in tones) of intend hectares per/season nominated with a minimum of 1000 tonnes per/farmer.
Total size of wheat hedge fund is maximum one million tones. Base on first in best dressed.