How do you define Commodity Marketing?

[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.)

[TOM4CWB]

Vader;

This is rather a selfish CWB monopoly view, if you would just think, for just a second.

Obviously you were not personally greatly hurt by this drought!

It should have been very obvious that the cost of our 2002 Canadian weather problems have been much greater than CWB selling prices have increased!

What exactly are you saying Vader?

What makes you think the rest of the world will not just increase wheat production, displacing CWB wheat, will the CWB monopoly prevent this from occurring?

Is western Canada and the US/Ausie supposed to stop growing wheat, so the CWB can proclaim "we can all extract premium prices" while people starve?

But will they starve, or does the CWB have a Monopoly over food production?

What is the CWB monopoly going to do when substitution of other food products reduces world wheat consumption, and this with the increased price (therefore extra wheat produced)...

DROPS the price of wheat drops even lower that it was in the last few years?

Will you then tell us to cut our production 60% again?

In Alberta I am told this blessing, for the CWB marketing monopolists, was a one in One Hundred and Sixty Five year disaster!

[ianben]

Vader
Would you mine telling us a bit more about yourself.
Do you farm , any CWB or other trade conections

[TOM4CWB]

Vader;

My dear wife, asked, why you called yourself "VADER"

Don't I remember you, not too long ago, defending freedom and justice?

And now you have turned to the dark side...

[Vader]

Vader was the name of the most beautiful black german shepherd dog you ever saw. It seemed appropriate to call him Vader although he was the most gentle animal you could imagine.

He loved chasing rocks developed a habit of carrying a rock around in his mouth. One day he choked on one. It was a sad day for the family.

[TOM4CWB]

Vader;

Please do not become so w****d up in your new experience, that you choke on that rock...

Remember those of us that love you, and care about you... again there is more to life than money..., and prestiege.

What will people remember after we have finished our work here on this planet?

Integrety and having a good name is worth more than gold, so please don't sell yourself for a bowl of lentil soup, or 20 peices of silver...

If you truly have "seen the light" there are more appropriate ways to handle that rock, cause it looks to many of us that you are already starting to choke, and you don't even know it...

Please do something while you still can!