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Growers who used Australian dollar (AUD) canola swaps this season as a buffer against a weakening market could be achieving returns of up to $37 per tonne above the port cash price for canola.
An analysis of all canola deals in the National Australia Bank agribusiness clients' hedging programs for this calendar year found many growers were able to successfully hedge against the weakening global oilseed market.
"Prudent hedging programmes aligned to protecting profitable values resulted in an average producer hedge of $397.30 per tonne. This figure represents the average for all National clients who sold November 2004 and January 2005 AUD canola swap contracts," the National's Head of Agribusiness Risk Management Services Tim Keith said.
"Taking into account the swap price and current cash price, this will give growers a return of approximately $37 above the current cash price," Mr Keith said.
This week, traders were quoting cash prices for Canola of $360 at-port (Newcastle).
Despite a fall in the value of the Australian dollar (AUD) against the Canadian dollar CAD), domestic canola values have fallen due to excess supply pressure on the global oil seed market.
"Every CAD$1 fall on the Winnepeg Canola Futures Exchange equates to a fall of AUD $1.08 per tonne in Australian dollar Canola prices at the current exchange rate of 0.9300. Winnepeg Canola Futures have fallen over CAD$85 per tonne so far this calendar year."
"Growers using the National's AUD canola swap were not only protecting themselves against adverse movements in the futures markets but were also covered against adverse currency changes. Canola price protection can be taken up to three years in advance.
"While the average return achieved by producers who used the National AUD canola swap was above cash prices at present, the major benefit of swaps for growers is the ability to lock in prices that protect their profitability, rather than looking for short term advantages over the cash price.
"The swap gives growers the capacity to protect profitable hedge levels up to three years in advance without having to make a commitment to selling the physical commodity until harvest," Mr Keith said.
Early hedging gives growers more certainty as they planned their cropping programs and budgets for 2004.
Mr Keith said the number of growers taking out swaps this season are strong and in line with previous years.
"If growers want to try swaps for the coming season, they will need to register with the National as swap customers and set up trading limits. So if there is a spike in canola prices later in the year, they will be able to move quickly to lock that price in," Mr Keith said.
The National AUD canola swaps are simple hedge contracts in Australian dollars that allow growers to sell canola at a preset price for a certain date. Growers can settle their swap at any time during the contract period.
Growers can use swaps to hedge their returns and then choose to deliver canola to sell for cash or warehouse and sell at a later date.
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