Alberta Farmer reporter Sarah Sutton was this year’s Canadian winner of the Alltech Young Leaders in Agricultural Journalism award, which allowed her to attend the International Federation of Agricultural Journalists annual meeting in Austria and Slovenia in September
Near Graz – Not far from here in southeast Austria, the Apple Route winds through fertile hills of fruit orchards, quaint villages and compact acreages. Over a million fruit trees grow along this popular yet rustic 25-kilometre route.
The Apple Route, known in Austria as the Apfelstrasse, is small in size but bustling with agricultural activity. In addition to apples, farmers grow strawberries, pears, peaches, elderberry and other fruit. The countryside is covered, literally, with black-netted orchards, not to deter birds, but to protect fruit from hail damage.
At the centre of this area lies the apple village of Puch. It’s near here that Martin Leitner and his father Karl operate Niglbauer, a family-run apple orchard and processing facility. The Leitners own five hectares of fruit orchards and rent another four hectares, on which they grow apples, pears and elderberries.
Martin said that one hectare can grow 4,000 to 5,000 trees, with three metres between the rows and 0.8 metres between trees. Trees stay in production for about 12 to 15 years, although that time frame is not determined by productivity of the trees by consumer demand for certain varieties. About 80 per cent of the Leitners’ production is fresh fruit. The remaining 20 per cent is used to produce juice and spirits.
At one point, this area was nicknamed the “Garden of Eden”, said Martin, because 50 per cent of Styria’s apples are grown there within a two-kilometre radius. The area is known for its firm, crisp, long-storing apples. Styria is the state in Austria known for its agricultural operations; the capital is Graz.
Martin said they don’t plan to expand their operation in hectares but in juice production. They even purchase extra fruit for processing to produce apple juice, apple champagne, apple wine and various spirits. “Value-added processing creates more jobs for the family,” said Martin. Juice processing also provides work in the winter, in addition to tree pruning. The processing lines can be adjusted for various products.
Central collection system
Most of the apples grown in the area are sold to Steirerfrucht, the leading marketing and handling of fresh fruit company in Austria. Roadsides are lined with green plastic Steirerfrucht collection and transportation crates.
Straight from the hip
Options are a security that gives you a right to buy or sell an underlying asset, such as a commodity, at a specific price before a set date. There is a risk and a cost in options, just as there is in any risk management strategy. Options are versatile, and may be used to protect a position on a declining market or to speculate on the forward movement of a market.
Options are available on the Chicago Mercantile Exchange for both live and feeder cattle. An option will have a premium in U. S. dollars, made up of two values, the intrinsic and the time value. The intrinsic value in a call option is the difference between the market price and the strike price. The intrinsic value in a put option is the difference between the strike price and the market price. The time value is the cost of holding the put or the call over a period of time.
The strike price is the price at which you wish to buy or sell. It is not the price of the day but a target price above or below the current market price. In a call option, it is the price at which the option is bought. In a put option, it is the price at which the option is sold.
A call option gives you the right to “call in” or buy an asset. It is the right, but not an obligation, to buy an asset at the future price before a set date. You buy call options on assets that you believe will increase in value. The benefit of the call is when the asset does actually increase in value. If it does not, you can do one of two things. You can let the contract expire and lose your premium or you can close your position. Either way you lose your premium if there are no gains in the market.
An example of a call option: You want to a purchase a product and believe that it will be more expensive next spring. You then buy a call option in anticipation of the increase in price. You choose the level at which you want to buy and pay a premium based on the intrinsic and the time value. These premiums are set. As the price goes up, you remain in the money and the call holds its value.
At some point you may want to exercise your option, before the expiry date at a profit, thus taking the profit less the premium. On the other hand, if the market should shudder and go south, then you have lost your premium.
A put option is used to when one feels that the market is going to continue to go down. A put is the right, but not the obligation, to sell an asset at a price before a set date in the future. There is a cost, called a premium, which is made up of the time and the intrinsic value. With a put option, and the expectation that the price will go down, profit is realized only if the price declines below the strike price. If the asset increases in value, the put is worthless and you have forfeited the premium. If you are out of the money, you can allow your contract to expire or exercise the put, but either way, you lose your premium.
An example of a put option: You own a commodity and think that the price will continue to go down. After selecting a strike price and paying the premium, the market does indeed continue to decline. The option is in the money and has value. You may exercise your put at any time before the expiry date by selling it for a profit, less the premium. If the market should gather legs and move up during the life of the put, then you have lost your premium and will have no potential for gain.
Realistically, markets do not move up or down, they move up and down. So the value of the put and the call are in constant fluctuation. Again, it is your decision to stay in the game (taking a long position) or exercise your option (short).
You are “in the money” with a call option when strike price is below the market price. You are “in the money” with a put option when the strike price is above the market price.
Options can also be used as a hedge. For example, if grain is expected to increase in price and cattle are expected to fall, you may employ a call option on the grain and a put option on the cattle. Both need to work to have the perfect hedge. Remember that all options contracts must be converted to Canadian dollars. As the dollar is another factor in risk, it must be considered as part of the risk management of the option.
As always, it is how you feel about a market, based on the information that you have, that allows for comfort in risk management such as in live and feeder cattle options.
There is no greater way to reduce risk than to stay informed. Risk management is based on unbiased information that looks at all the fundamentals of a market. Drop us a line at [email protected] and we will start your year off with a free month of our newsletter.
Brenda Schoepp is a market analyst and the owner and author of BEEFLINK, a national beef cattle market newsletter. A professional speaker and industry market and research consultant, she ranches near Rimbey, Alberta. Contact her at [email protected] telusplanet.net