Think outside the bin

[Hopperbin]

Great focus group Ian.

[ianben]

ado
I am a little disappointed in you. Do you really think that is a fair deal that will attract local investment.

Lets pretend I have this great idea for a new heathly breakfast bar.

I come to your area invest loads of money, the bar takes off but in year 4 just when I am about to make a profit you want the option not to supply me because your grain does not meet my specs.

I dont need to understand why, because it was too, wet too dry, the deer ate it, I just need to know the grain will be delivered ,whenever, to my specification. Thats what I am paying a premium for.

I am a farmer, so yes, I see your worry meeting spec every year for every tonne is immposible.

The Coors contract above has addressed this problem by spreading the suppliers 100miles north and south of it maltings and storing over twelve months supply of barley. The earliest they change crop year is 1st Nov and I am sure it will be well into 2010 before they run out of 08.

Just imagine to cost of buying and storing 350,000 tonnes,figure might not be quite right but it was large.

If you were willing to give that everyday commitment what would it be worth?

Would a little more thought outside the bin find a solution.

Could we with the better price store some full spec as a buffer then if my internet site existed find full spec wheat to fill the contract and a good buyer for our not quite so good stuff.

You see without that contract I dont think my breakfast bar will ever go into production

[Hopperbin]

But Ian your saying the Health bar company should want to dump all risk back onto the producer who already is fed up with risk. Ado just wanted less risk. The health bar company likely can pay more but does not have to or wants the top 20 percent of grade that cannot rely on a producer to supply. As producers we have witnessed .85 cents per pound N so we must be cautious of long term contracts. 3 years from now it could cost double to produce them oats so a long term contract is something to stay away from since we cannot lock in inputs that far out. Could be a hell of a lot more to lose than gain by a long term contract.

[ianben]

Glad your enjoying this hopper

No Risk is shared after all it has taken three years before I saw any profit.
I am just trying to show the other guys view.

Like the long lease for a farmer.

The commitment to supply is what makes this happen not the price of the grain.

The grain in Coors contract is priced every year because of their reasons above.

Would it be that difficult to find a solution to supply given the above senario.

[chaffmeister]

The risk to the farmer isn't in the price of the commodity - it's in the margin, or return.

What about a 3 to 5 year contract between farmer and end-user that guarantees a return for the farmer - in other words, the price paid for the production is the cost of production plus a predetermined return (profit, or contribution margin).

What's your view:

How would you as a farmer react to that kind of offer? Guaranteed profit but no upside. Also, customer getting further into your business than perhaps you'd like.

How would the end-user react? Guaranteed supply (forget about production problems for now) but no price guarantee (cost of production goes up, so does his price).


Oh yeah - and it's VOLUNTARY.

[ado089]

Ian,
I am sharing the risk with the proposal I suggested. I'm saying that because you want to pay me a premium now, I won't jump ship and sell my product to the next guy to come along and start a health bar factory. In exchange for this I'm asking to be paid for my loyalty and asking for the production risk to be shared equaly, because guess what? If I don't get a crop for some reason out my control and can't deliver to your helathbar factory, I'm not making money either.

The problem with any of these IP and specialty crops is that they ask that we deliver first to them but they only pay enough of a premium to make us think that it's a good deal, then at the end of the day if we produce too much or deliver too little we get punished. That doesn't sound like sharing risk to me.

[ianben]

I posted this in the who does best thread but some of the point I make think show where I am coming from


I would say the one who manages risk the best, could even be the farmer.

In all sectors up and down the chain some will prosper some will fail.

We run a local hay for horses business where we are "the chain" and perhaps get a better idea of each individual risk.

Our biggest risk is running out of product because then the customer rings someone else and we have lost a customer.

When we started we thought the biggest risk would be making good hay as we live in a wet area.

We found there is a customer for most grades but he aways knows what that is not us.

Any shortfalls in our own supply both quantity and quality we just buy elsewhere and it has been easy to achieve in practice if not quite as profitable.

This is working quite well but only if we supply the right product to the right customer.

This is what I would like to do with grain but not get involved in the chain.

My skill is in growing not milling malting etc, but I would like to find a way to contact the customer who wants my grain.

This hay , because of our climate, is even more varied in the quantity and quality we produce than our grain, but as stated above we either buy in or store our own for longer up to three years in one instance.

Can you not see that for me risk my money I need a secure supply otherwise I loose everything. All my hardwork is taken over by a competitor with perhaps an inferior product but the ability to deliver.

You on the other hand have presumablly a lower grade product I cannot use but still has a value elsewhere.

You where also wanting me to take more last year when yeilds where good.
What did you do with it? Sell it?

It is less of a challenge to manage this risk with a little thought than it appears?

Locating alternative supplies to maintain my production with an ebay for grain would make life easier.

That is the hard part with the hay locating the bought in element.