Just for you three amigos Agstar and Burbert, cchurch.

[ado089]

When it comes to grain we are suppliers not customers and anyone in buisness knows that you grind your supplier to reduce costs and increase margins.

[chaffmeister]

So you think a better system would be to have offshore buyers pay you a price FOB Battleford?

Are you suggesting they pay the same price in Battleford as in Vancouver?

Or are you saying they should write you a cheque and come and pick it up - that way they're paying for the freight?

If the CWB sells wheat to China (as if) on a FOB Vancouver basis (picked up in Vancouver), who's paying for the freight? You or the buyer? Does it matter?

[ado089]

Your response show just how conditioned you are to the current system and exactly why you'd get eaten alive in an open market situation. I don't sell my grain to a buyer in family in China or a flour mill in Italy or brewery in St. Louis. I sell my my grain to a grain company or the wheat board, they then sell it to someone else, who sells it to someone else. This concept of being charged for freight, elevation, handling, cleaning and so on until it's processed or consumed is as absurd as you sending Agrium a bill for trucking and the fuel for you auger and rent on the bin, or sending Bayer a bill for seeding their canola. When my grain hits the pit in the elevator that should be the end of my ownership of that grain, from that point forward it's no longer my problem. We've all been trained to beleive it's our grain until it reaches the consumer since british north america act. Step back and look at this situation from a striclty buisness perspective, we let ourselves get nickle and dimed out all our profit and we are still just price takers at the end of the day. Only in agriculture.

[Hopperbin]

Ado I don't agree with you, these six so called grain companies will be trying to sell their goods at the highest price they can and they want to sell and ship as much as they can. How many times have I heard that these grain companies will be undercutting each other till nothing left that is garbage. Also they cannot sell too much on one end without sourcing a percentage on the other or cutting risk my using the futures markets. So it is farmers who decide ultimately the sale. You talk like the grain companies have our grain sold for the whole year and they are fixing our prices. Unless like you, perhaps you just deliver all your grain and take what they give you. Price too high, lose market share, price too low become loser. Customer always right. Make customer happy especially when 10 percent adds a lot to the bottom line.

[chaffmeister]

Having freight, elevation and cleaning deducted from your cheque has nothing to do with ownership. You may think you were trained to think you own the grain until it reaches the consumer, but I'd be willing to bet you just weren't paying attention in that class.

You seem to think that if the deductions weren't there that somehow you wouldn't be paying for them.

Really?!

When I bought the computer I'm using right now, the price I paid was for the computer picked up in that store. The store paid the manufacturer for the computer plus paid freight charges to truck it to the store. Just because I didn't see a freight bill or a freight charge on my invoice, do you really think I didn't pay for the freight?

Sure, the store paid the freight bill, but you can be sure they captured it from me.

Nickle and dimed? Are you serious? The CWB sc****s dollars a tonne off your cheques without you even knowing it and you think by having elevation and cleaning deductions on your cash tickets somehow you're being taken to the cleaners because you're being forced to pay for the services indicated?!

[ado089]

Let's try rephrasing this. The likes of Viterrea, JRI, Cargil(the grain side at least) are not our customers, they are grain handling companies, hence why we get to pay the cost until our grain lands on a boat. They make most of their money handling our grain an charging us for that "service", the rest of their profit comes from margin made on transactions, buying low and selling high. But since they are not the end user and they are primarily grain handling companies, as per our current and any suggested models, they will focus on volume to maximize handling profits. This means handling the highest volume possible and there we are back to the tendering process. I realize this is an over simplification of the process and at the end of the day a market requires a seller as much as a buyer but at the end of the day I don't know of many farmers who will not put in a crop because the price isn't high enough, they may change what they grow but that creates oversupply of something else down the road. Maybe if grain handling and purchasing were divorced we would see a benefit from competition but not with the bastardized system we have now.

[ado089]

Chaff, I am not defending this wheat board, I'm defending the concept.

[ado089]

and thank you for proving my point. You paid the freight and before that the store paid the freight. I'm still not seing where the computer manufacturer paid freight on that computer.

[chaffmeister]

And thanks for making my point.

If the computer manufacturer did pay for the freight to the store, what would that do to the price they would charge the store for the computer?

In the end, it matters little who pays the actual freight bill. The manufacturer still receives the "market price" for the computer.

[dmlfarmer]

chaff and hopperbin. Either of you ever hear of Walmart. Number one company in the world in terms of sales! And their business model is to sell cheaper, (by buying cheaper) than anyone else. why won't grain companies follow this proven business model?

Oh, and why would a multinational grain company buy grain from a central Sask farmer, if a farmer in Australia or Brazil or Russia is willing to sell it cheaper, or if it is cheaper to ship to a buyer from another country. Will not that grain company try to maximize profits by buying as cheaply as they can and minimizing costs of handling?

Like it or not we live in a Walmart world and an individual farmer is and always will be a price taker.

[chaffmeister]

ado - you really have an unfortunate misunderstanding of how grain merchandising works.

Let me explain and take a shot at the CWB at the same time.

CashPlus on malt barley. The brain-child of the CWB. The CWB sets the price to the maltster and then tells the maltster what he can pay the farmer. No pooling, just "cash prices".

So maltster A sells malt to the US and maltster B sells malt to an offshore buyer. Let's say the US malt market works out to a price on the barley of $200 to the farmer. But the offshore market works out to only $160 to the farmer.

So here you have two buyers competing for the same barley but one can only pay $160 while the other can pay $200.

Who gets the barley?
(Hint: Maltster A at $200/t)

Is maltster B happy with this situation?
(Hint: No.)

So here you have a situation where one buyer can't compete with the other because the price he can pay is too low.

That was my shot at the CWB.

_______________________________________


Now for the point on grain merchandising. You're right - your example was over-simplified. Handling grain is NOT made up of a series of discrete sales (tenders), covered individually, then onto the next. Grain merchandising is dynamic and fluid - selling and buying on the same day, carrying inventory, shorting, basis appreciation, hedging, lifting hedges, rolling hedges, spreading, blending, logistics, arbitrage, optional origins (for you, Larry) and so on.

On any given day or any given period there are numerous potential trades to make - some good, some not so good. A merchant's job is to find the good ones and execute. Go for the highest priced sales because those are the ones that'll pay the margins and allow you to lead in the country by paying more than anyone else.

The last thing a trader wants to do is to have to tell his boss that he got all the low priced sales and it's going to be tough to compete in the country. Margins will be thin.

When Japan is paying $450 for canola but Mexico is only willing to pay $400, do you think anyone sells to Mexico? Based on your logic, they would do it for the volume. But they don't - if you wanna know why, just re-read what I just wrote.


You wanna divorce grain handling and purchasing - "we would see a benefit from competition but not with the bastardized system we have now."

Guess again.

The CWB system already separates grain handling and purchasing - and that's why we have the bastardized system we have - and why you end up with elevation and cleaning deductions that confuse you to think you're paying for something someone else should pay for.

[chaffmeister]

dmlfarmer:

You ask: "Will not that grain company try to maximize profits by buying as cheaply as they can and minimizing costs of handling?"

Absolutely.

What I don’t get is how you guys can see THAT part of the equation but don’t see the obvious other side:

<b>Will not that grain company try to maximize profits by SELLING as high as they can and minimizing the cost of handling?</b>

To me it’s obvious. They won’t sell into a hole any more than they will buy on the rooftops.