chuckChuck:
I think we need to be careful with our language – we may be misconstruing each other. Wide basis levels at harvest don’t necessarily mean farmers are taking a “drubbing” – inefficiencies in the market are creating distortions, but I still believe that the price farmers are getting are correct, given the structure of the market. They may be lower than what they would get with different market conditions, but I don’t believe it’s because the crushers are taking advantage of them – market factors are creating the distortion. These include cash flow needs of farmers (partly due to the CWB) as well as crushing economics. (If the oil contributes more value than the meal – an oil-led crush – then canola margins will be greater than bean margins because canola has more oil. Is that the fault of the crusher? Is there some way you’d like to see them share this margin with farmers? When crush margins are small (or negative) are you willing to provide your canola cheaper to ensure a “reasonable” margin for the crusher?)
I think to you, crushers taking “excessive margins” means that they are taking more than their fair share. But then we need to then determine what their fair share is.
To me, “excessive margins” means greater margins than “normal” or “typical”. It is everyone’s job to capture margins when they can, as long as they do it morally and legally. In 2008, when wheat hit $20/bu in the US, American farmers who had wheat available to them could have (and should have) sold at that price. Did they get “excessive margins”? Absolutely – they were greater than “normal” or “typical”. Is that a bad thing? Of course not.
It appears your argument is that farmers don’t get to capture “excessive margins” as often as others. If that’s the case, then it would make sense to look at the root causes and not simply throw out arguments against the open market in principle.
I believe the two biggest issues are that farmers – as a group – don’t have strong hands (they often are forced to sell for cash flow, not market opportunity) and they need to improve how they respond to market signals (many would if they could but cash flow needs kick in again.
How many farmers sell futures, hold them almost until the delivery month, then, if the spread to the next month is at a wide carry, buy their futures in and sell the deferred contract? (Its called rolling your hedge and it actually pays you to store your grain.)
The single most important issue to improve market performance for farmers is to solve these issues. Do that and you will see a more balanced market where farmers will be able to capture a greater share of “excess margins”.
I think we need to be careful with our language – we may be misconstruing each other. Wide basis levels at harvest don’t necessarily mean farmers are taking a “drubbing” – inefficiencies in the market are creating distortions, but I still believe that the price farmers are getting are correct, given the structure of the market. They may be lower than what they would get with different market conditions, but I don’t believe it’s because the crushers are taking advantage of them – market factors are creating the distortion. These include cash flow needs of farmers (partly due to the CWB) as well as crushing economics. (If the oil contributes more value than the meal – an oil-led crush – then canola margins will be greater than bean margins because canola has more oil. Is that the fault of the crusher? Is there some way you’d like to see them share this margin with farmers? When crush margins are small (or negative) are you willing to provide your canola cheaper to ensure a “reasonable” margin for the crusher?)
I think to you, crushers taking “excessive margins” means that they are taking more than their fair share. But then we need to then determine what their fair share is.
To me, “excessive margins” means greater margins than “normal” or “typical”. It is everyone’s job to capture margins when they can, as long as they do it morally and legally. In 2008, when wheat hit $20/bu in the US, American farmers who had wheat available to them could have (and should have) sold at that price. Did they get “excessive margins”? Absolutely – they were greater than “normal” or “typical”. Is that a bad thing? Of course not.
It appears your argument is that farmers don’t get to capture “excessive margins” as often as others. If that’s the case, then it would make sense to look at the root causes and not simply throw out arguments against the open market in principle.
I believe the two biggest issues are that farmers – as a group – don’t have strong hands (they often are forced to sell for cash flow, not market opportunity) and they need to improve how they respond to market signals (many would if they could but cash flow needs kick in again.
How many farmers sell futures, hold them almost until the delivery month, then, if the spread to the next month is at a wide carry, buy their futures in and sell the deferred contract? (Its called rolling your hedge and it actually pays you to store your grain.)
The single most important issue to improve market performance for farmers is to solve these issues. Do that and you will see a more balanced market where farmers will be able to capture a greater share of “excess margins”.
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