HRS

[farmaholic]

I wonder what the percentage of Producers is who have the financial strenght to "wait out" low prices. Ask Broadacre or every highly leveraged operation how long they can wait. Oh yea, they're supposed to sign contracts to sell spring wheat before they know the results of their harvest (QUALITY and quantity). Even if some prepriced a "percentage" of their production(any or all crops), how long is it before the next sale needs to be made for cash flow reasons.

[jdepape]

Bucket -
Basis (price) improving from minus 80 to plus 20
CAD weakening from 95 to 88

Nothing wrong with that. What am I missing?

FX is just one part of the wheat basis. Much more to it is supply vs demand.

With today's futures rally, basis dropped (price dropped). As flat price - net price to the farmer - improves, graincos know they will likely buy more, even if the price is only slightly higher. So they fade it. This will continue to work in their favour as long as most farmers ignore basis and only consider flat price.

[farmaholic]

John, next time you need fuel for your vehicle or food for your family and you think it's too expensive, wait it out, help push down the "prices" you pay. If you can't, I guess your part of the problem.

[bucket]

It's funny.

When we were par the basis was plus or minus.

Now we are at a 88 cent dollar and the basis hides the fx of currently 75 cents a bushel. I realize it's an intricate allusion or calculation that a dumb **** like me can't figure out but why the **** can't it just be transparent.

What you are missing is Dec mpls closed at 6.50 usd today. I have a zero basis and can't get 6.50 cdn for my grain. The real basis is still minus 32 cdn dollars a tonne not zero as the graincos report.

[jdepape]

Farmaholic - you nailed it.

Capital is the holy grail of farm marketing. And lack of capital - selling because you need the cash flow - takes away all your marketing power.

i think if you ever did a survey on this, you'd find that those guys that have the capital, to avoid being forced to sell for cash flow, are the most successful and have longevity.

It seems like whenever there's a good year, guys are doing whatever they can to avoid taxes - buy new equipment, more land, inputs etc. Makes sense in a way - but has anyone compared those tax savings with marketing opportunities made available by keeping liquid with cash? (How much more can you make by having the cash to "wait" - even though you paid more taxes?)

Here's a question - when you reduce your tax burden, how much on a per bushel basis are we talking about?

[bucket]

That's why I don't buy shiny things because I like cash. But when I sign good contracts and then get forced to hold grain I don't find it too ****ing amusing. Nor do I like ****ing excuses as to why I can't deliver when a contract is signed months in advance.

And I really ****ing hate hidden costs in basis, car deals etc. It's misleading and immoral.

And for those that say that's the norm they are condoning the behavior.

And yeah I am comparing some people to car dealers. You are smart you figure it out.

[farmaholic]

That's why I reiterated your comment and made the comparison between business and personal. Both need to feed themselves. Its not always so easy to just wait it out.

We are most valuable to them financially weak.

[jdepape]

Here's an idea.

We have Registered Savings Plans - RSPs - any money you put in an RSP reduces your taxable income by that amount.

What if there was a Registered Hedging Plan - an RHP - where any money you place in an RHP reduces your tax burden according. So instead of avoiding taxes by making a capital investment in your business by buying equipment or land, make a capital investment in your business by building the financial capacity to market better.

As long as the money stays in the RHP, you don't pay taxes on it. If you use it to hedge, and you have a hedge loss (meaning your grain is worth more), you can re-populate it with money earned from selling your grain at higher prices.

Who would use something like that - to reduce taxes?

[jdepape]

Bucket - don't know if I'm supposed to be insulted but I'm not.

Seems we've had this conversation before...

When you think there's something hidden in the basis, you're thinking of it as a cost, not a price. When they say my price is 10 over Mpls Dec futures, what most buyers mean is simply take the futures price, add 10 cents to it, and that's my PRICE. For that, they are saying they are willing to take the FX risk along with other factors in the basis. Only a couple that I know of do it differently where they give a basis in CAD and to figure out their net price you have to convert the futures price to CAD and combine the two. What these guys (Paterson and CWB) are saying is, here's my price - you take the FX risk (until you price it out).

What it seems you want is a full accounting or list of what costs are in the basis - like we had with the CWB. My point is that basis doesn't works like that - it's a price, not a cost.

Just like you look for the buyer with the best price (and terms), buyers look for the seller with the best price. And that's what drives basis more than anything.

[bucket]

Here is a better idea. If graincos are using mpls futures to price grain, how about they convert it to canadian dollars and minus their basis.

Then everyone knows the true price of grain and makes the decisions accordingly.

Transparency leads to accountability.