Canola Collar for Producers

Your need

You are a producer (seller) of canola and would like to have protection against canola prices falling but also have the opportunity to benefit to some degree if prices increase, at a zero or reduced premium.

Solution

A canola collar allows you to remain at a floating commodity reference price while being protected should the commodity reference price fall below the agreed minimum price (put strike price). In exchange for a lower or zero premium you will forego the benefit of the commodity reference price rising above a maximum price (call strike price).

How it works

After credit approval, you enter into a canola collar with the Bank. You will specify the put strike price, the transaction amount, the exercise date/s and maturity date (expiration date). The Bank will determine the call strike price and any premium. Usually collars are structured on a zero premium basis.

Possible outcomes on the expiration date

• Commodity reference price is lower than the put strike price - the Bank must pay you the difference between the put strike price and the commodity reference price.
• Commodity reference price is higher than the call strike price - you must pay the Bank the difference between the commodity reference price and the call strike price.
• Commodity reference price is equal to or above the put strike price and equal to or below the call strike price - you and the Bank will have no further obligations to each other with respect to the canola collar. The result will be that you can sell your physical canola at a price that is equal to or above the put strike price and equal to or below the call strike price.

Benefits

• You receive protection against any fall in the commodity reference price below the agreed put strike price.
• You can take advantage of price movements in your favour up to the agreed call strike price.
• Can be customised so you can determine the put strike price, the transaction amount, the exercise date/s and expiration date you require.
• Can be structured on a zero premium basis.
• Are cash settled, so no need to physically deliver canola to the Bank.
• There are no complex exchange traded brokerage and margin calls.

Points to consider

• The put strike price may be lower than the comparable fixed rate (canola swap rate).
• Participation in commodity reference price movements above the put strike price is limited to the call strike price.
• An amount may be payable by you or to you if the canola collar is terminated prior to its scheduled expiration date depending on its mark to market value.
• A premium may be payable by you to the Bank as an up-front payment.
• A canola collar does not cover the basis risk, which is the risk arising from entering into a hedge transaction that is not identical with the risk being covered.

     Like to know more?

• You'll find more detailed examples, including pricing on our secure commodities website. Register Here
• Email us to schedule a contact time to discuss your commodity requirements.
• Call us on 1800 633 957 from 8am to 5pm (Sydney time) Monday to Friday.