Opportunity?

[farmaholic]

A few extra cents.... really?

[charliep]

Here is a story I posted a while back. Will do it again. Two of the most misunderstood elements of grain marketing are understanding grain flows/delivery signals and carry.

Basis is a signal to attract or discourage delivery.

I remember about 20 years in my time with Growers Marketing Services at UGG.

I remember this day when the canola trader was in my office complaining about the fact he had a tremendous price out in the country (read strong basis) and they still couldn't get grain up the driveway. They had a ships arriving in Vancouver and didn't have supplies in the system to fill the boat. Had a farmer phone about an hour later and wonder why UGG's prices were so good relative to everyone else. Tried to explain without coming out and saying UGG was short canola relative to sales. His last sentence was if you guys are willing to pay this much today, you'll pay more tomorrow.

The elevator system did what it had to do relative to price to fill the boats. About a weak later, the canola trader was in my office with a smile of relief. An hour later the farmer is phoning me to chew me for not telling him the price was going to drop.

One of your strongest tools in marketing canola (not available with most crops and more complex with wheat) is your ability to separate delivery commitments from pricing.

[charliep]

For what it is worth, I found your price quotes interesting. Did my own checking on local prices and October delivery was $8.30/bu based on a $398 November futures and a $30 under basis. June price was $9.43/bu based on a $427 July futures and an $11 under basis. The market will pay you over $1/bu to store. All these are posted prices. Transacted deals with shopping may be different.

[Braveheart]

Charlie, I used GMS back in the day. It was a great little service. It was simple to deposit money into my margin account just at the local UGG. (Too frequent.)

They had a great marketing booklet with a marketing decision tree in it. It is a great tool. I wonder how many young farmers today are even aware of it.

Thanks for the the story. It is very relevant to this to this topic.

[oneoff]

oneoff - Is having a neighbor make a sale a bad thing? They are doing it for own business reasons. I will be called selfish but that is likely a good thing for me next winter. Their canola is gone (crushed or loaded on a boat) so it something I don't have to compete with this winter/next spring. Canola carryover will be tight and that will mean tighter basis levels this winter.

I know the difference between a few cents (plus or minus) and a few dollars a bushel.

The effect on profit in production (if there is any at all) is nowhere directly related to either the measly few cents; nor the few times in a lifetime that there are dollars extra per bushel in your pockets.

In fact it as simple as saying that after the cost of production is covered; every extra cent and dollar is absolute profit.

Setting marketing goals to break even; or even for small profits means you're borderline dependent on the equivalent of begging and pan handling. Your hands are in the pockets of taxpayers who justifiably don't appreciate being pick pocketed. And the crop insurance and stability programs and government payouts are close relatives through public funds keeping these programs solvent.

If I read you correctly charliep; I sometimes wonder if you realize that lining up contracts and assured guarantees before it is even sown; is not recognized as a workable attempt at having taken most of the possible volatility out of market over many month periods.
In fact its a perpetuating cyle that never ends and only is interrupted when supplies are down to bin bottoms and those few who have true market discipline; and the realization that some stored supplies are assets and not liabilities.

And you just might be suprised how a part load of good quality yellow mustard or flax or peas or durum wheat could be worth a surising hunk of change a few times in your farming career. Some binfuls and you make mre profit in those rare years; than all the nickels gained and dollars lost in the intervening years.

Selling as much as possible at harvest time is good for the marketing system and buyers and transportation....but show me how most of the potential profits are not lost by those who feel they must get rid of tough grain; don't and won't invest in storage and are trapped and addicted into contracting.

Those in those circumstances are not bettering their situation; and perhaps more importantly are paying little attention to any effects including the price depressing effects of "forced" selling.

No wonder inadequate farm returns are an on going agricultural production problem. And for those that think decent prices would only increase rents and input costs; and farm land values and farm machinery list prices......I can probably begin to understand why you want to be locked into negative production returns.

This marketing system is broken; the production players take what they are offered and the sellers swallow the reasoning they are fed; and take the price whatever is; because of the threat that it will decline further.

[oneoff]

If farmers would analyse their inadequate "return on investment" that might then well lead to some analysis and reconsideration of their strongly held beliefs and faith in the bill of goods they have been sold (and fully swallowed)

[Braveheart]

I think you swallowed a sour pill.

[farmaholic]

I agree with oneoff that dumping grain because of emergency/poorly planned cashflow needs, tough grain and don't want to deal with it, lack of binspace, new-age mega farms that need huge cashflow at harvest-regardless of anything, gotta get it out of the bags, just simply cheapens the value of the commodity for them and everyone else.

There's carry in the market, if you don't have to "give" it to them, don't.

Our mediocre crop has changed the farms profitability. Since we will likely be losing money on a couple(or maybe more) of crops we grew it now means we need more out of the ones that show potential for profit. Soooo, be damned If I am giving grain with potential to make money away at a price
a "little" over COP. Focus will change from crop by crop profitability to whole farm profitability......

And I've already started barking at my input suppliers about the mediocre crop and prices and their continual tiring threat of input price increases, there's tonnes of room in the choir loft-join the choir. If you're mute they must think you're safisfied.

[oneoff]

Brave..

It has a lot more to do with realism; analysis of the big picture and looking at the situation with more than personal interest at stake.

In fact I have commonly, deliberately taken stances that are not in a person's best interest. That includes sticking up for those even when the mob concensus is overwhelmingly onesided.

No evidence of ingestion of sour pills here lately. Hell Newco even paid up almost two months ago. Nobody else in the 130 odd farmers owed varying amounts (of those partially covered by the CGC bond) has even mentioned that fact. There is a fair bit of the Newco attitude that does not meet with my personal approval...but one must admit that they did pay the principal amount owed to their customers..albiet with a delay and after one had written off the debt as never having a snowball's chance in Hell of recovery.
Maybe everyone else got paid too...but either this site has a very limited readership or no one shares much of value; or its a privacy issue or whatever. You would have thought someone else would have reported on that good news...afterall grain payment defaults are painful and quite damaging. Maybe next time Brave...et al will share a little more next time; and show sympathy for what is known as "there but for the grace of god go I"

Regardless; everyone is still stuck with CGC bonding; the Atradius proposal fell apart; and thogh there is recognition of a dysfunctional payment system there has been no change in bonding system to fully cover those who deliver agricultural goods and then don't receive full payment.

[Braveheart]

Bonding systems are beyond my discussion abilities. I'll leave policy stuff like that to groups like the Wheat Growers or Grain Growers of Canada.