Wide Basis

[Hopalong]

Keep hearing that wide basis levels of past two years come out of farmer's pockets and runs into billions of dollars.
There is the other end of the value chain where consumers pay more and it could be said part of wide basis comes out of their pockets.
Hear that producer selling allows wide basis but it is also importer and consumer buying.
Pointing out that is in interest of our customers also for us to have a dependable handling and transportation system along with few trade barriers.

[bucket]

Just explain what makes up the basis.

I get demand plays a part or lack of.

But when there are boats sitting for over a month to load I can't help but think that demurrage is part of the equation

Freight cost. But in reality a smooth working system, with only 112 car spot active, that should reduce overall cost.

What's the other components I am missing.


And if the consumer is picking up part of it why is it continuing to widen?

[Hopalong]

Seem to be somewhat different answers what basis is.
Some graincos use futures contract prices deductions without explaining. Some commodities including canola have prairie positions, I think, for delivery against futures contracts
Some claims of farmer loss are based on difference between pacific port selling price and country elevator price without factoring in amounts actually sold at those prices.

[bucket]

But half the prairie canola crop is processed on the prairies?

The transportation costs can't be as high as exporting it?

And yet on every tonne the basis is based on getting it to vancouver even though saskatoon is the basis point.

[TOM4CWB]

Bucket, if you think back to 2002-03... we went to a net freight price... where growers got export price at the farm gate. Malt Barley was imported from the EU... to domestic prairie malt plants. CDN Canola Crushers could do the same if we grow sub 14mmt Canola Crop... as presold Cdn Canola exports will continue.

[Braveheart]

I like to keep things simple. Basis is simply, the difference between futures and the street price. What does it matter what is in the basis calculation? It will be different every time depending on futures volatility, cost of carry, grain in position and on and on. Just learning and knowing what a good basis for my area is what matters. Then of course, making decisions with that knowledge.

I know the above sounds a bit preachy, but people really do get too hung up on what's in the basis. I don't even want to make time for another itemized thing in my life.

[Hopalong]

I like your reply, Braveheart.
Difficult for some of us not to see profits of others as not coming out of our own pockets.

[TOM4CWB]

Hop along
I recall the negative crush margins Canola plants had as well.
We are living in interesting times no doubt!!!

[MBgrower]

I heard from a fellow in the industry, not to use the USDA's published HRS seatle export basis and assume that is where vancouver basis is trading at. He said canadian graincos undercut american export basis all the time, so that is why canadian elevator prices are way lower than in ND and Montana.

We have become the blacksea of northamerica, lowest price is the law.

[Braveheart]

MBGrower, the only thing is prices in southern MB have been higher for most of the late winter and into spring. A few points in MN had better prices from time to time.

[tweety]

I don't agree Braveheart, if you know based on delivery destination the majority of the fixed costs for basis, you can easily determine the 'profit' factor.

Helps with decisions.

[Braveheart]

But I don't care about their profits. They're their profits. I care about our profits.

As to delivery destination, are you saying every time you consider a bid you ask the grain co where the grain is going?

We all talk as if the basis is always futures minus, but there are times, surprisingly frequent, when your bid is futures plus. What happens to your calculations then?

I want to know the basis but the intricacies behind it are too much for me. Ocean freight, was someone's deal CIF, fx, cost of carry, volatility in underlying futures, credit terms to customer, etc., are all issues I don't want to deal with at this time.

Once I start watching someone else's profit/business instead of our own I become either vain or bitter.

[bucket]

Braveheart

See how long this lasts if the primary producer isn't making money.

In a few weeks we will find out.

See what kind of money the middleman makes when there is little production.

.

[tweety]

When its a positive basis, then you know demand is high and good time to sell.

[TOM4CWB]

When it was a positive basis in Feb/Mar 2015, I priced our HRS wheat.