Is the Video Working! You bet your ASS it is!

[bucket]

chuckles

What PRO do you use to seed a crop - September's?

The PRO stayed up until it was too late to change seeding plans.

Are you saying the PRO's are useless as well? Turning anticwb are you?

The PROs have no place in marketing as they have no contractual obligations. The cwb can say whatever they want with PRO's and not one farmer can tie a contract to it.

[bucket]

Chuckchuck/forestgump

Would you like to explain canpotex for us or are you still eating that box of chocolates?

[chuckChuck]

Jdepape,
I will get back to you with my response on CWB premiums vs costs.

But you didn't answer all my questions.

What advantage does the higher domestic usage give to American farmers and their prices?

Also why not look at the costs and profit margins in the open market to compare performance? How are farmers to make informed decisions if they can't see how the open market performs?

A few years ago when the lentil market was crappy, your colleague in grain marketing and consulting (Marlene Boersch) provided evidence that Canadian pulse exporters were undercutting each other in the international marketplace just to get handling /processing fees and market share in an over built industry.

What are your thoughts on that John?

Why is the open market not always working efficiently for special crops?

Doesn't matter whether it is Ford or BMW. Ford doesn't have a monopoly on trucks either but we know that trucks and suvs were a huge profit maker for them. Is Ford better than GM or Toyota? I guess that depends on who you are talking to.

[bucket]

chuckchuck

You do realize that the US buys grain from the cwb and then are able to export their poorer quality around the world, currently at a premium to the cwb?

In durum, they buy our product so they can access the higher quality pasta markets like Japan.

Unfortunately, the cwb never allowed a pasta plant to be built, so the US did it and buys our durum. Its called a value added business. the US just buys durum, pretty simpple compared to a canadian that has to re buy something they already own.

BTW, on the canpotex thing, do you think that mosaic buys back its product to sell into the US????

Trucks come up with feed wheat to terra and reload with potash or nitrogen, and back to the US.

[chuckChuck]

Bucket,
What was the US market for Durum indicating at the same time? Why not just use US market indicators if you don't trust the PRO?

[bucket]

chuckles

The point being the US market was also positive on durum BUT they could sign a contract for that price at the time. Farmers couldn't get close to 7bucks USD in feb 09.

If a western canadian farmers could sign a contract for durum based on the PROs, there is a pretty good chance the cwb would gain some support. But when they put out a PRO and lower it continually and then only accept one third of the 09 production that is incompetence. AND someone at the cwb should have been taken to task on that.

[jdepape]

In the interests of “informed debate” I will venture into your discussion topics, assuming in good faith that you will get back to me on CWB premiums vs costs. But before I do, one more thing to think about on premiums, from a previous post:

The other way to look at it is to look at the price the CWB got in comparison to "the market" over the crop year. I can’t speak for you, but if I’m going to hire someone to market my grain for me, I expect them to get me better than average prices. When you compare the final pool return to whatever relevant market you want, it is lower than the crop year average for the crop year. In fact, if you compare CWB farmgate returns to US prices over a crop year, in most years the CWB pool return is lower than the lowest US price of the year and never is it much higher than the lowest US price.

<b>The US farmer can sell his whole crop at the lowest price of the year and still get a better price than you through the CWB.</b>

chuckChuck: your thoughts on this please.


Your questions:
“What advantage does the higher domestic usage give to American farmers and their prices?”

Let’s assume for a minute that you are right that American farmgate wheat prices are higher because of a higher domestic usage proportion (at least I think that’s where you were going with this). The US also exports wheat, as you know. And to the same “lower value” destinations that Canada does: Bangladesh, Indonesia, China, El Salvador, etc.

If, as you say, the US has higher prices to farmers because of a large domestic market, at what price do these other destinations pay for US wheat? Do they pay as much as the domestic market - or something less? I’m going to guess that your answer would be they pay less.

The CWB has always said that multiple sellers would push prices down to the lowest market value. What you are saying is that doesn’t happen in the US.

Can you explain how your theory and the CWB’s don’t match?

Next question:
"Also why not look at the costs and profit margins in the open market to compare performance?"

I’ve already done that – you must have missed it. There’s plenty of evidence that non-CWB margins are slimmer and costs charged to farmers are lower – that with the CWB.

[chuckChuck]

John I haven't forgot about you. I am still working on a response to CWB premiums vs costs.

In the mean time, I think you you are dismissing the point I am trying to make about the price advantage of the larger domestic usage in the US market.

As an example only: If a US mill pays $300 per tonne in Minneapolis and the cost of getting it there is $30 a tonne from Fargo ND the net is $270. If the same quality is sold to an off shore customer and the cost is $60 per tonne to get it there the net is $240. This is assuming that the off shore customer and the US mill are paying the same price because of competition from other suppliers.

Since the US market consumes more of its' domestic production over 50%, and Canada less < 30%. (Charlie gave the precise numbers earlier) Then Canadian farmers are putting a larger percentage of lower value returns into their pooled prices from off shore markets. #1 Is this true from your perspective?
#2 What is an approximate value advantage to US farmers of this higher domestic usage?

Your generalization about lower costs in the open market is just not always true. Making wide sweeping generalizations is always dangerous.

I pointed out earlier a glaring example of the pricing problems in an oversupplied lentil market by Marlene Boersch. What is your response?

I also noted that the basis for yellow peas in the quorum report ( I don't remember which year) was very high.

The reality is there has not been a study that has looked at performance, costs and profits in a wide range of open market crops. Please correct me if I am wrong.

I think you are being somewhat selective in your arguments.

[jdepape]

chuckChuck:

For some reason you have the US mill in Minneapolis and the offshore buyer (somewhere else) paying the same amount - $300. Why? There is no market reason that would happen – other than coincidence.

Another problem - in your example, the farmer is being presented with two prices - $270 if he sells to the domestic market and $240 if he sells to the offshore market. How can that happen?

Before I can answer your questions, I need to be clear on what you’re trying to say.

On the other topics – patience, we’ll get there.

[chuckChuck]

John,
It was simplified example for ease of an explanation.

Actual prices will vary for each market depending on location and costs to deliver plus competitors bids of similar quality.

Another example: If lentils in Spain are worth 50 cents per pound. Lentil producers in Spain will reap a higher net price than producers in Canada who have a much higher freight bill to land their lentils in Spain if all other factors are equal.

US traders can pass on the freight savings of a larger US domestic market for wheat and Durum to US producers because a larger share of their market basket is domestic. Of course they can be selling to both domestic and off shore markets.

I am not suggesting that traders offer a separate domestic price or offshore price. Their returns from each market will be factored into their offers.

Does our basket of markets return less than the US basket of markets because of their higher domestic usage gives them a freight advantage in their own market if all other things are equal?

This is an important point because you have to account for the advantage in a direct price comparison.

If we could sell all our durum and wheat into the US it would be a non issue. But the reality is we are selling into a different basket of markets with a different percentage of domestic usage in our respective countries.

[bucket]

chuckchuck

You said

" Another example: If lentils in Spain are worth 50 cents per pound. Lentil producers in Spain will reap a higher net price than producers in Canada who have a much higher freight bill to land their lentils in Spain if all other factors are equal. "

How come that doesn't happen with cwb milling grain to the millers in Canada. Farmers get exactly the same price if they ship to the elevator or the mill?????

[jdepape]

chuckChuck:

Something needs to be very clear before we go on. Markets interact with each other. Some call it arbitrage.

If the US domestic market is paying $6.00/bu to farmers in North Dakota, we need to ask: what will cause farmers to sell to offshore markets at something less?

What happens when the domestic market is $6.00 and because of competition from other countries, the best the offshore market will pay is only $5.50? Who sells their wheat to the offshore market? If acting rationally, no one.

If the country in question (USA) needs to clear tonnage to offshore markets, one of a number of things needs to happen. First, the offshore buyer could agree to pay more to compete with the domestic buyer. But why would he if he could buy from another country cheaper?

Or, the domestic buyer could lower his bid to farmers, knowing that the only other opportunity for the farmer is to sell offshore at a lower price. Why would he continue to pay $0.50/bu more than his competitor?

Or, the farmer could only sell to the highest bidder – in this case, the domestic buyer – until he’s satisfied and then sell to the lower priced markets.

In reality, in a fully functioning market, all three happen at the same time. The offshore buyer acts rationally, buying from the best seller; the domestic buyer bids only as much as he needs to, to buy what he needs; the farmer acts rationally by selling only to the highest bidder.

The end result is, for equal quality and terms, the domestic and offshore markets merge – the farmer effectively sees but one price.

So it’s not a case of US traders passing on the freight savings – offshore markets compete with domestic markets for the same grain. If there is a glut of wheat in the world, the US price needs to drop in order to compete. In other words, domestic buyers will follow suit and lower their prices accordingly. If the global market is in tight supply, prices will move higher and domestic US buyers will need to raise their price to compete.

What makes you think that US domestic buyers will buy at higher prices than they need to?


You make an interesting comment: “I am not suggesting that traders offer a separate domestic price or offshore price. Their returns from each market will be factored into their offers.”

How so? Are you saying that the grain companies make more on one market than another?

To your question:
“Does our basket of markets return less than the US basket of markets because of their higher domestic usage gives them a freight advantage in their own market if all other things are equal?”

The simple answer is, no. Both markets need to clear to offshore markets, so both are a function of the interaction of those markets and the domestic markets.