Just for you three amigos Agstar and Burbert, cchurch.

[dmlfarmer]

chaff, you just answered your own question. All buyers will buy as cheaply as they can, including the US maltster in your own example. Buying price is not set by the highest seller, but by the lowest seller. In your malt example, if someone is willing to sell at the $160 per tonne, very soon the US buyer will drop his offer to that $160 level too. It makes no differenc in a global market if that seller is your next door neighbor, or a farmer in Brazil. If the US malt buyer continues to pay $200 for malt when sellers are accepting $160 the US malt company shareholders are not going to be happy campers.

The other factor which you ignore is there is a finite number of dollars which are available to purchase the grain. Do you think the one billion people currently mal nourished are hungry by choice or is it a lack of money to buy food? As prices rise, volume drops in all commodities(remember potash). Grains are no different. As price goes up the amount traded drops. So grain companies maximize profit by minimizing costs (as you agreed with) and by maximizing handle. Getting the highest grain price MAY not be as profitable as getting a lower price and selling more grain. Remember Walmart.

[chaffmeister]

Dmlfarmer:

It was unfortunate to use the malt example – I just wanted to highlight what was REALLY happening under the CWB, but it may have just confused the matter.

Let’s get back to the issue – ado’s contention that “At the end of the day if the board is scrapped there will be about six grain co.'s fighting not to purchase our grain a higher price but to sell it at a lower price”

I get concerned when people think that when grain companies compete they have an incentive to drive the price to zero. My point is – as a trader you want to make the high-priced sales.

When you think about the price getting driven down, look in the mirror or around the table in the coffee shop. Farmers pressure prices lower (for cash flow), grain companies will only offer at prices where they know they can buy it from farmers. Think about why basis levels in canola are weakest in the fall and get better over the rest of the year. Selling pressure from farmers followed by a lack of selling by farmers.

Sage advice I got when I was a trader: “don’t sell a market the farmer won’t sell.”

Yes, grain companies want volume. They get that by keeping their costs low and making sure they are the best sellers out there – not the cheapest.

Think of my canola example. No one sells to Mexico when others are selling to Japan at a higher price. Why? Because they would have to compete with the Japanese business at higher prices.

WalMart is different. Because of its size, manufacturers fall over themselves to do business with them. Before they can even get their product on a Walmart shelf, manufacturers get pummelled by Walmart for price and volume commitments. Walmart then can go out with the lowest prices to the consumer.

I don’t know of any grain company that does that. “I’ll take 90% of your production capacity over the next three years at 50% lower than the rest of the “market”. No farmer would do it either.

[dmlfarmer]

"My point is – as a trader you want to make the high-priced sales."

Sorry Chaff, I disagree. As a trader I want to maximize profits! That can be done by getting the maximum possible for my product (ie potash corp) or it may be by maximizing volume (ie Walmart). Both are valid business models. Unfortunately the Walmart model has proven more successful because the final consumer does not want to pay a high price for anything - including the food that they eat. They too want to buy as cheaply as possibe.

While you as a grain seller wants a high price, you as a buyer of farm imputs wants a low price. There is even a thread on Agri-ville celebrating who buys fertilizer this year the cheapest. Do you really think the fertilizer manufacturers or retailers appreciate farmers competing to see who can purchase the cheapest fertilizer any more than farmers appreciate countries and corporations trying to minimize the price they pay for the grains we have to sell?

I agree fully with your statement "don't sell a market that a farmer won't sell" however "farmer" does not just include western Canadian farmers but every farmer reached by the companies buying the grain. Given the 4 major grain companies are multinational and can source grain anywhere in the world - the price we get is set not by western Canadian costs of production but by the lowest price farmers around the world are willing to sell for.

Finally, with your Japan/Mexico example- what happens when Japan is no longer buying? If Mexico is the only other buyer at that time and farmers need to sell, will not the price fall to what Mexico offers? Then when Japan needs more canola, will they again pay what they were paying or will they offer what Mexico is paying?

My point is: In a competitive selling enviornment with many sellers and few buyers, who sets the price the seller who wants a high price or the buyer who wants a low price?

Both the cattlemen and pork producers have learned this lesson the hard way. Why cannot grain producers understand this?

[ado089]

How many times do I have to say I don't support this board, I support the concept so stop arguing the stupidity that we've all acknowledged is the current CWB. One of the reason we have this b.s. rip off of a handling/purchasing system is because one way or another we already open market selling, it just get's pooled up before it hit your bank account. All our grain co.s are out there selling our wheat on our behalf as lisecened merchants of the wheat board, tripping over each other so they can win those tenders and handle that grain. SO there's problem number 1 the fox is guarding the hen house. As far as the shipping goes, my 1,500mt of wheat/yr is peanuts, but someone buying a vessel of wheat is probably going to demand and get a better shipping and handling rate, so yes it does make a difference who foots the bill. To your trader 5 years out of commerce, looking to make the big bucks and maker big, he's not going to want report to his boss and tell him that he lost $10million in handling proffit because he was 10 cents a bushell on a 200,000mt tender. I really don't know how you are figuring that price discovery in the country is going to lead to anything but the absolute lowest price farmers are willing to pay. I'm pretty sure last time viterra was $60/mt cheaper for urea you didn't go running to JRI to pay more beacause you were able to sell your canola at higher price. To that mexico/japan scenario, as nice as it is to think things work that way, they don't. They may have different limits on what they pay and they may give clues to that via their hedging activity and resulting market reaction, but at the end of the day there is a tendering process and may the lowest bid win.

[chaffmeister]

To dmlfarmer:

"My point is – as a trader you want to make the high-priced sales."
Sorry Chaff, I disagree. As a trader I want to maximize profits!

And you do this by avoiding high-priced sales?

You make my point over and over. The best one is this: “the price we get is set not by western Canadian costs of production but by the lowest price farmers around the world are willing to sell for”.

I also like: “I agree fully with your statement "don't sell a market that a farmer won't sell" however "farmer" does not just include western Canadian farmers but every farmer reached by the companies buying the grain.”

I note you correctly identified farmers as the sellers that determine the market price and I agree it doesn’t matter where those farmers are.

By the way, nor does it matter that “the 4 major grain companies are multinational and can source grain anywhere in the world” – they compete at the consumer’s door. Even if a particular seller can’t source from say Australia, they still compete with Australia and the prices Australian farmers are willing to accept.

You also support my position with “While you as a grain seller wants a high price, you as a buyer of farm imputs wants a low price.” (Yet you disagree with me when I say a trader wants to make high-priced sales. Hmmm….)

There are three ways to make money in merchandising: sell well (high), buy well (low) and reduce costs.

Walmart has chosen to be the best at buying well and reducing costs. Because they have such low costs they can offer prices below everyone else and still make money.

But Walmart – like grain traders – don’t sell anything at a price that their suppliers won’t sell for.

Now if I could talk you and other farmers into selling your grain to me cheaper than you sell to anyone else, then I could become the Walmart of the grain business.

On fertilizer etc, I doubt fertilizer companies give much thought about farmers “competing” to see who can buy fertilizer cheaper. They expect it. Farmers should expect the same from their buyers.

About Japan/Mexico – if there is a need to sell more canola than the traditional buyers like Japan and domestic crushers will take, supply exceeds demand at those prices. Economics 101 says the price will need to drop to increase demand to clear more canola from the market. This drop in price attracts new buyers (Mexico) and market equilibrium is achieved.

To your point: “In a competitive selling enviornment with many sellers and few buyers, who sets the price the seller who wants a high price or the buyer who wants a low price?”

Answer: both.

[ado089]

Wow, I don't know how I could have been so wrong to think that a company is going to pay the least they can for the goods that they are re-selling and that they would compete with their rivals for the customers buisness and that people will alway buy the cheapest product that satisfies their needs. Where did I ever get that idea from. Damn I'm glad someone was here to straighten me out on that.

[chaffmeister]

Ado:

I don’t care whether you support the CWB or not, nor am I addressing that so stop worrying about it.

Grain companies handle CWB grain whether they sell it (“win those tenders”) or not. And if they do sell grain on behalf of the CWB, they don’t set the selling price – the CWB does. So they can’t push the price of the grain down as you seem to think.

However, the CWB does tender a small portion of their country origination with grain elevator companies, who do indeed discount their handling charges to win those tenders. Isn’t competition a great thing?

By the way, I see no fox.

On freight: don’t confuse “footing the bill” with “negotiating the rate”. Also, don’t talk about ocean freight as if you can’t compete because of your size. You can’t compete because you’re not in that business. Just be thankful that someone can negotiate those rates because that means the prices you get for your grain are higher.


Here’s where we have a communication problem – you say:

“I really don't know how you are figuring that price discovery in the country is going to lead to anything but the absolute lowest price farmers are willing to pay.”

First, I assume you mean the lowest price farmers are willing to SELL. If that’s what you meant, I’ve never said anything different. I agree – the price in the country is going to be the lowest price farmers are willing to sell. Can you see a situation where it would be more?

Sorry you think the Mexico/Japan scenario doesn’t work that way. After 30 years in the grain business, I can assure you it does.

[chaffmeister]

All these words put in my mouth simply because I said its misguided to think:

.....there will be about six grain co.'s fighting not to purchase our grain a higher price but to sell it at a lower price.


And yet, all this time we agreed on so many things:

1. a company is going to pay the least they can for the goods that they are re-selling.

(Let me add - "least they can" means they still have to compete with other buyers - can't do that by offering the lowest prices all the time)


2. they would compete with their rivals for the customers business

(Let me add - assuming we are talking about a commodity, the best way to be competitive is by having the lowest costs - which means perhaps negotiating the best ocean freight rate....)


3. People will alway buy the cheapest product that satisfies their needs.
(Not always, but I agree with the sentiment here.)

______________________________________


It seems we disagreed on this one:

4. Companies will charge as much as they can when they sell something.

[ado089]

First of all when I was talking freight I was not including ocean freight. I was saying the if company/country X was looking for 200,000mt of wheat from region Y they would likely be able to get a more favorable freight and elevation charge from pit to port than me shipping my 1,500mt of wheat to Vancouver.

As for the rest I'll agree with everything in the last post but you explain this to me...The price of beef at the grocery store has not dropped in the last ten years even though the price live cattle has. How does selling for more translate into buying for more, providing I am wrong about these companies using my grain to compete against my grain?

Also...since grain companies love the CWB due to the risk free and lucrative nature of handling board grain and you've been in the grain industry for 30 years, you must be a broker or a consultant. That would be a good space to be in if the board were to be gone, not?

[Fransisco]

I know my farm would be a much better space to be in if the board was voluntary.

And it's funny, how boardies always equate "voluntary" with "gone".

[chaffmeister]

Ado:

You say you weren’t talking about ocean freight – excuse my mistake. When you said “… someone buying a vessel of wheat is probably going to demand and get a better shipping and handling rate” I assumed you actually meant a vessel. Silly me.

Before I explain this….
“The price of beef at the grocery store has not dropped in the last ten years even though the price live cattle has. How does selling for more translate into buying for more, providing I am wrong about these companies using my grain to compete against my grain?”
…you’ll have to explain the question to me.

Good space to be in if the board were to be gone: just about anywhere.

[ado089]

Just because someone reselling something for more, providing your economic theory holds, doesn't mean that said company will pay more for the raw goods. Beef and live cattle as an example.

Anyway I'm out of this one. I hate defending left wing ideals probably because this is about the only one I have and I really do think that the organization that is in place now is a complete joke and costing us a bunch of money.