How do you define Commodity Marketing?

[Vader]

If this discussion group is to focus more on commodity marketing how do you define commodity marketing?

In Jack in the Beanstalk, Jack took his cow to town and marketed it. He came home with four beans in his hand.

From the statistical tables on the CWB website, in 2000-01, American customers bought 1 million tonnes of spring wheat and 369,000 tonnes of durum. This represents 7.5 per cent and 10 per cent of total Canadian export sales respectively.

A few of the Asian countries that purchase Canadian wheat include in Alphabetical order:
Afganistan, Bahrain, Bangladesh, Cambodia, China, Cyprus, Hong Kong, Indian, Indonesia, Iran, Iraq, Israel, Japan, Jordan, Korea, Kuwait, Lebanon, Malaysia, Oman, Pakistan, Phillipines, Singapore, Sri Lanka, Taiwan, Tailand, and the list goes on.

How do we best market our grain in a fiercely competitive world market to maximize returns to producers in these parts of the world.

If you simply dump your grain in the elevator pit whether that be in Moose Jaw, Saskatchewan or Wolf Point, Montana are you marketing your grain? When you select a pricing option and hedge your sale, are you marketing grain? Where does the rubber hit the road? Who will travel to Bahrain to convince the customer that this product will meet his quality specifications. Who will convince him that this shipper will meet the delivery requirements of his mill? Who will broker the deal? Who is the marketer of that grain?

In a world that is generally oversupplied with wheat and with companies like Louis Dreyfus making large infrastructure investments in the Ukraine and Russia, marketing will take on greater and greater significance. Who will make the profit on those marketing efforts? How will the producers marketing efforts, working from his home computer, be rewarded in comparison?

Who wants to take a trial run at marketing into Tailand or Indonesia? That might be a good comparison to see if the CWB is doing a good job. Perhaps some of the more capable marketers on this list will put a boat load of grain together and send it over there. Perhaps the CWB would accept such a chalenge and grant a "no cost" export licence.

[TOM4CWB]

Vader;

Marketing often is an investment in the future, to meet the needs of the present for both the supplier and the consumer of a product.

I am always amazed at how the Canola marketing system, western Barley marketing system, and specialty crop marketing systems can blow CWB multi-seller theories out of the water.

There are closed co-operative marketing systems all around the globe that almost entiely operate by contract with loyalty, but without a single desk or monopoly.

How do you propose to create marketing choice at the CWB, although we know it will be kicking and screaming, so all of us can get on with our lives and feed a hungry world...that we know needs the food we produce???

[Vader]

If only the needs of the world would drive the system. That is simply not the case. Only those who can pay will get fed. It is not a hungry world for lack of supply.

[parsley]

Vader,

You state:

"Who wants to take a trial run at marketing into Tailand or Indonesia? That might be a good comparison to see if the CWB is doing a good job. Perhaps some of the more capable marketers on this list will put a boat load of grain together and send it over there. Perhaps the CWB would accept such a chalenge and grant a "no cost" export licence."

I'm sure that a lot of organic farmers would take the challenge, but would find after marketing was done, the grain sourced and the boat was loaded, that the CWB would deny the export license, steal the buyer, dump the grain at a discounted price to him, neglect to get the boat loaded in time and add demurage to the targeted organic levy that the CWB put in place.

The organic industry found their own customers....called consumers.....in many different countries in the world, and built an industry. One where farmers could make profit. They designed their own transportation systems, they designed 'identity preserved', they developed customer developed. Freight was downloaded on the customer.

Tell me about what a great job the CWB has done for the organic indutry. Good grief, CWB doesn't even market organic grain.
What you don't seem to recognize is that farmers ARE capable. Perhaps you think that there are hordes of stupid farmers out there that need an expert to supervise. I've think otherwise.

Experts don't necessarily have a monopoly on experience or initiative or creativity. CWB expert marketers were taking farmer grain and dumping it in the elevators and it was the farmers themselves who developed an organic market in spite of the Canadian Wheat Board. And from all reports, the CWB continues to be an impediment.

Shall we try another market as an example for you, for instance the feed wheat and barley that the CWB NO longer market or pools?

Parsley

[les]

Vader
Most farmers have equity worth over $100,000,000 today.I think they are capable of marketing their own grain.Farmers for years have marketed non-board grains on there own and do just fine ,just as the cattle guys market their own cattle with out help from a "canadian cow board."

[les]

And one more thing while i am spouting off......If the CWB is so sure they are the only ones who can get us a good price ,then why dont they let us have the choice and if we find out they are right then wont we coming running back to them?

[Vader]

parsley,

First you say,

"I'm sure that a lot of organic farmers would take the challenge",

then you completely negate the possibility by the following contrivance

"would find after marketing was done, the grain sourced and the boat was loaded, that the CWB would deny the export license, steal the buyer, dump the grain at a discounted price to him, neglect to get the boat loaded in time and add demurage to the targeted organic levy that the CWB put in place"

Put your money where you mouth is. Find a buyer in Thailand. Find enough farmers willing to throw in with you for whatever price you might get. Negotiate the shipping terms. Insure the cargo. Guarantee the payment. Instead of worrying that the CWB will steal your customer, (That is one you currently do not have) perhaps you could steal the CWB's customer. Now there is a thought. How would you go about doing that? Perhaps you could offer them a better deal?.........

[TOM4CWB]

Vader;

All these hypothetical examples are interesting... but there is good reason the CWB does not market to these people now... the answer is simple, if we produce an expensive high quality product, giving it away to those who do not need or even want the quality we produce is a total waste.

Now Let us take Japan...

If Canadian wheat is so good, and US/Ausie wheats so poor, in a quality conscious market like Japan, just why do they buy US and Ausie wheat?

And if the US multi-marketer system discounts so badly, why does the CWB use US Portland wheat prices to determine all the CWB Canadian domestic milling prices?

Except when the CWB decides to price discriminate and give domestic millers cheaper than US Portland prices...

Simple economics would dictate that if the CWB were charging more than US suppliers for the same service and quality wheat, CWB market share would go down.

And if as the US has pointed out, CWB market share increases, then obviously the economics has been better for these North American millers to buy from the CWB.

Obviously This is why North American market share has increased for CWB sales of wheat and durum over US products!

Now Vader... where are we back to?

The magician has once again tried to trick those hard working souls, out of their property!

A trick that is neither legal or ethical... yet the magician is able to keep on performing... because the hand is faster than the eye, especially when the magician can distract, use trick lighting and sound effects, confusing the most logical and reasonable person into believing the impossible is possible!

Unless this person knows how the magician does the trick, and then anyone with a little practice can do the same thing!

Vader, the CWB monopoly is a magician’s trick, and some would go so far as to call it a cruel hoax...,

What do you think Vader, do you see why?

[parsley]

Vader,

The Americans would probably say it is the CWB who retains the infamous "State Trader of Undercutting" title!

In my observation of the organic industry though, farmers are not undercutters, they have built a premium market directly from consumers. They get top dollar. Many of them co-operate with each other, they ship together, they insure together, they find new markets together, and they primarily co-operate locationally because it is the most economical.And not because someone threatens to throw them in jail if they don't!

It must be very difficult for a world of marketing experts at the CWB to give credit to a bunch of farmers, for heavens sake, for building a whole new ocean of organic markets from the ground up.

Cattle people have been marketing internationally for years. So have the forage people. This isn't a new idea.

Seeking markets in Taiwan or Japan or Mexico would not be a "novel" idea for organic farmers at all,(or for many conventional farmers either), but a common practice, in many cases. My observation of them is that they put their money exactly where their mouth is, and they have built a solid base from that money, to make money. And they did it. A bunch of farmers.

I don't think any of them would want to 'steal' a CWB customer though, because the CWB sells only into the conventional market and cannot capture organic premiums. Poor pickins, so to speak.


On the other hand, I see the CWB drooling when they eye up the organic markets. Perhaps that is why they hired an organic marketing specialist to market organic grain in spite of the fact they do not market organic grain.

les noted that many farmers have over $1Million invested in their farms, so you can bet that farmers want to make sure they have some decision-making powers over their farm investment. A smart conventional farmer would not hire someone to market his 'organic' grain if he doesn't grow it.

No smart farmer will go to Taiwan, make the deal..... , and then find out he is denied a CWB export license. And that is the hurdle. No sense putting together a contract if you cannot identify the hurdle, Vader.

Parsley

[Vader]

Why does Japan buy wheat from Canada, USA and Australia?

First they have a policy to not rely on any one of these suppliers and compels them to buy from multiple sources.

Second mills have a target protein level which I suspect is somewhere around 13.5%. If they use only 14.5% protein it does not suit their baking requirements and likewise neither does 12.5 or 11.5% protein.

What is the best way to meet the millers and bakers exact protein requirements? They purchase a range of products and blend to their exact specifications. Does Canada supply the higher end of Japan's protein requirements? You bet we do. Do you think that puts Japan in a situation where they might want to pay a premium to satisfy both their policy and quality demands? You bet.

[Vader]

TOM4CWB

You state,

"Simple economics would dictate that if the CWB were charging more than US suppliers for the same service and quality wheat, CWB market share would go down."

The US produces twice the amount of wheat that they consume. They are the worlds largest exporter of wheat at 26% of world trade. Why would they buy one single bushel of Canadian wheat? Again it comes back to the demands of the millers. The millers have exacting specification for protein, falling numbers, ash content, gluten strength. If they could get those quality factors with consistent service from their own producers, they wouldn't need Canadian wheat. Obviously they can't since as you say we have increased our market share.

Have we done this by discounting prices? There is no evidence of this. In fact the free trade agreement prohibits the CWB from pricing differently in Canada and the USA. The ITC has investigated Canada's selling policies on numerous occasions trying to prove exactly what you are implying. The last investigation showed that for 59 out of 60 months over the last five years American millers paid a premium for Canadian Durum wheat over what they paid for American supplies of durum wheat.

Now the Americans are looking for other ways to apply tariffs against Canadian wheat saying that our grading system and our transportation system,......yes our transportation system are subsidies to Canadian wheat. Why do they target our grading system. Personally I have never been a fan of KVD. But our system does successfully identify a consistent, quality product for the millers. The millers want our grain and some are even willing to testify to that in these trade challenges. It is the farmers and Senators who are trying to shut down our exports to the US.

[melvill]

I'm amazed at how these threads can so quickly digress into a "mine is the best religion debate" but I get off my soapbox . . . . .

This thread started with a question - "How do you define primary commodity marketing?" We can't answer that until we define what a commodity is. A primary commodity is best defined as "a transportable item of commerce or trade especially a product of mining or agriculture, often basic items or staple products, from which others are derived." In the past a commodity produced in one geographic area could not cannot be easily differentiated from the same product produced in another distant or nearby geographic area. Of course, with the intervention of dramatic steps forward in science, very minute differences can be measured for differentiation. However, iron ore produced in Quebec isn't much different from iron ore produced in eastern Europe. Soybeans produced in the US aren't much different from soybeans produced in Argentina.

So here's how I'd primary commodity marketing.

Selling, which in my experience is what all too many producers do, is "getting rid of what you have." For example, 'I've got to get rid of my backgrounders because I've got a feed bill to pay." Or 'I've got to haul some grain 'cause I've got a land payment due next week'. It's possible to sell commodities because my wheat isn't much different from your wheat (except, perhaps, in a year like this one).

Astute commodity marketing is a two-fold practice. It is planning to have what you can sell at a good price. That's two-fold because it involes "planning to have" and "selling at a good, profitable price". It means planning, with all of its imperfections, to produce what the market wants. Then it means planning and managing the price risk so that it can be sold at a good, profitable price. It may now also include attempts at product differentiation to meet the needs of specific customers for producers of, say, organic wheat.

My wife, who was a marketing manager for a western Canadian fast food chain before she decided to spend her life with an aggie, defines marketing differently because she wasn't dealing with a commodity. She says marketing is market development and product promotion based on a real or perceived product differentiation. It means meeting a created or real need of a group of consumers.

With the exception perhaps of certified seed growers and producers of livestock breeding stock, most commodity producers do limited amounts of market development and product promotion. Of course, that is changing as individual producers of niche oroducts work very hard at market development and product promotion based on a real or perceived differentiation.

We need to realize, however, that if everyone began producing the niche product, it would then become an undifferentiatable commodity.

So in my opinion, astute commodity marketing is a planned and carefully managed process requiring time and expertise.

[melvill]

Hey, Agri-villians. Sorry my last post was so long. Maybe I should have been a southern revivalist - you know unending verbalization!

[Vader]

I like what you say about "planning to have".

Normally we market about 20,000,000 tonnes of wheat out of Canada. This year it might be closer to 7,000,000. Mother Nature has effected "supply management" on Canada and has also limited the size of the crop in Australia and the US. Isn't it amazing how the market has responded. In the month after the CWB announced that it had withdrawn from the market wheat prices went up almost a dollar a bushel.

Perhaps if we "planned to have" something less than 20,000,000 tonnes of wheat each year we might be able to "sell at a high price" more often.

How do we do that? We don't have a supply managed system. All we have is the PRO. The PRO doesn't always reflect a profitable sale for many producers and yet they continue to produce large quantities of wheat.

What if there was you could divide up CWB sales into different price ranges and each producer could exercise individual control over which CWB sales they participated in? Perhaps a sale to one country would make sense while a sale to another country would not. Rather than offer all of their grain to the CWB, some producers might decide not to participate in lower value sales once they have covered their cash flow requirements. This grain could be carried forward to sell to the high end markets the next year or offered to the domestic feed/ethanol industry.

[melvill]

Vader, interesting questions you pose but let's analyse Canada's situation for a minute. Let's look at your wheat, as an example.

I'll stick with my "planning to have". The problem is that nobody that I've ever met has ever poerfected the planning process. It can't be perfected because no one but no one but no one has perfect foresight. There's a huge involvement of luck, good or bad, and unforseen circumstance in almost every outcome.

You said the PRO doesn't reflect a profitable sale and yet we continue to produce large quantities of wheat. We've been able to do that by continually working very hard to reduce our per tonne costs of production by some combination of increasing farm size, making machinery last longer and longer, getting off-farm jobs and increasing yield. (And many producers don't know their costs of production so the only way they know they're in difficulty producing wheat is when they get in a cash flow squeeze or someone points out erosion of equity.)

Those measures to reduce per unit costs of production probably won't go on indefinitely because: 1) there seems to be a maximum farm size dictated by labor availability and 2)some other wheat producing area may be able to produce wheat at such dramatically reduced per unit cost - for example Ukraine, Russia, Kazikstan - that we'll be hit incredibly hard over a very short time.

In either case, astute managers will plan to switch to producing some other product that will portentially be profitable. It may be a specialty wheat rather than a generic wheat. It may be pulses. It may be organic pulses. It may be something we haven't even heard of today.

An example is Hawaii. At one time it had huge acres of sugar cane. It's costs were low and production was very profitable. Soon Hawaii's per unit costs rose and other countries were able to produce sugar cane at much, much lower costs. I saw the last sugar cane field in Hawaii in 1993. Former sugar cane fields are now producing speciality coffees, macadamia nuts and other higher value crops.

Is it possible that Canada will, over time, be forced to produce less and less wheat and switch to other higher value crops?

Of course, another way for Canada to stay profitable in the world wheat market is to experience a significant reduction in our costs of production. Significant land deflation, which would be devastating to current land owners, would reduce per unit costs of wheat production to new owners! (An acquaintance of mine has become extremely wealthy by buying failing businesses at 50 cents on the dollar, which reduced costs of production, and turning them into profitable ones.)