India buys wheat?

[rook]

Here's an article I came across today. I hope some people with grain industry/merchandising experience can answer some of my questions. The article says that India awarded sales to Glencore and Toepfer, two big traders based in Europe. Than Toepfer head office decided to use some Canadian wheat to fill the tender. If this is the case, what value did the CWB add to this sale? Could there even conceivably be a premium in an environment where a private company won the tender than decided to source some from Canada out of its multiple locations? I'm not looking for CWB bashing, I'm looking for real answers as to how the global grain trade actually works.

India to import wheat from Europe, Canada
Commodity Online
MUMBAI: Where is India going to import the huge quantity of wheat the country has already tendered for? Mostly, India will import the grains from Europe and Canada, officials said.

India last week issued tenders to buy 795,000 tonnes of wheat. Out of this, already, the government has decided to purchase 740,000 tonnes of wheat from Glencore International of Switzerland and 50,000 tonnes from German firm Toepfer International. Singapore-based Starcom will provide 5,000 tonnes.

Toepfer International officials said mostly the company will provide Canadian origin wheat because of poor wheat production in Australia.

India is the world’s second-largest wheat producer after China, but orders from the country to build up buffer stocks have pushed price of a bushel climbing 30 cents to $7.88 a bushel on the Chicago Board of Trade.

India last year suffered a weak harvest and entered the world market aggressively to import wheat. The International Grains Council expects India to import more than three million tonnes this year, despite an improved harvest.

India is expected to float more wheat import tenders despite high global prices to ensure that enough buffer stocks are there for the coming months.

[melvill]

Can't comment on the Board value in the Indian market. However, heard yesterday from a very reliable source, the Indian gov't's political decision to build up internal stocks, especially at these high prices, is causing a significant amount of controversy and political debate at home. It'll be interesting to see if that controversy ends up causing a change of plans.

[charliep]

Will leave the question on value of CWB alone as well except to comment the business was likely done optional origin with the multinational shopping the market to see which exporter will provide the required quality grain at the lowest cost.

A new world as Incognito highlighted in a previous thread. If you were the government in a country with 1 billion plus people and you looked at the current world wheat supply demand, how much risk would you be willing to take with food security for your nation? China must be asking the same question and will be the wild card.

[TOM4CWB]

Charlie & Lee,

THE CWB pools are at maximum distortion level now!

Sales to India could well be $100/t above previous CWRS sales;... for Winter and CPS wheats today.

Who makes the political decision that takes $100/t off my winter wheat/CPS cheque... and adds it to the CWRS growers pocket?

What makes this either fair or equitable?

I see really hard grading on CWRS as well... a sign they want "Western Wheat" to fill the boats with 2-3CWRS... a very simple way to get cheap wheat. We are VERY far away from being market driven... this new world of biofuels/environment changes everything!

[TOM4CWB]

Charlie & Lee,

THE CWB pools are at maximum distortion level now!

Sales to India could well be $100/t above previous CWRS sales;... for Winter and CPS wheats today.

Who makes the political decision that takes $100/t off my winter wheat/CPS cheque... and adds it to the CWRS growers pocket?

What makes this either fair or equitable?

I see really hard grading on CWRS as well... a sign they want "Western Wheat" to fill the boats with 2-3CWRS... a very simple way to get cheap wheat. We are VERY far away from being market driven... this new world of biofuels/environment changes everything!

[TOM4CWB]

Charlie & Lee,

THE CWB pools are at maximum distortion level now!

Sales to India could well be $100/t above previous CWRS sales;... for Winter and CPS wheats today.

Who makes the political decision that takes $100/t off my winter wheat/CPS cheque... and adds it to the CWRS growers pocket?

What makes this either fair or equitable?

I see really hard grading on CWRS as well... a sign they want "Western Wheat" to fill the boats with 2-3CWRS... a very simple way to get cheap wheat. We are VERY far away from being market driven... this new world of biofuels/environment changes everything!

[charliep]

Note the thread question was about India and impact on the market. Will also do the civil servant soft shoe and hand the question over to BennyHinn, Agstar77, Wilagro, etal.

To bring the question back to the original topic, the answer on how to get proper signals from a sales opportunity like this might be cash pricing for winter wheat (either open market or facilatated by the CWB), shorter pooling periods, separate pooling class for winter wheat, ensuring all forward sales ahead of harvest are either covered by farmer pricing contracts or hedged, etc.

[rook]

Thanks for all your answers so far. However, I'm still confused as to the role of the CWB in this transaction. Did they bid on the original tender from India, only to be unsuccessful and then sell to Toepfer? Did Toepfer even talk to the CWB or did they just call Cargill or AU, etc, to secure Canadian grain? I'm still having trouble knowing what the CWB did in this transaction. So far my only conclusion is that they may not have been involved at all, and if they were, they were redundant. Neither of my conclusions so far leads me to believe they extracted any premium or added any value.

Of course, if it were sunny out I wouldn't be worring about any of this at all...

[chaffmeister]

The CWB may have bid on the original tenders – or not. Only the CWB knows for sure. If they did, they weren’t competitive. Could be that the others were more competitive because they offered on an optional origin basis.

Toepfer would have negotiated directly with the CWB when they were looking at their origination options. Toepfer is an Accredited Exporter of the CWB.

From where I sit it looks like the CWB either didn’t offer on the original tender or was unsuccessful, then Toepfer negotiated with the CWB for the resulting business. Since the market has been moving higher pretty much for the last few months, it may very well have been to the CWB’s advantage to have missed the original tender and to sell it later at a higher price to Toepfer (who was likely long futures as a hedge anyway).

In terms of getting premiums – there is absolutely no doubt that the CWB did NOT get any premium for this sale – over a sale to another market or over the “market” price.

Redundant? Yes.

Added-value from missing the original tender? Yes. (Sometimes its better to be lucky than smart...)

Added-value from single desk power? No.

[charliep]

Lee and I talked over/I got the short straw.

What you have in a sale is a three way dance - a manage a tois if you like.

You have an Indian buyer who is reviewing offers from all over the world. The are getting quotes from exporters/multinationals for wheat landed an Indian port (similar type and quality). The Indian buyer is trying to purchase as cheap as possible.

You have the CWB who normally (not always) sells basis Canadian port - i.e. the CWB does not normally get in the business of booking ocean freight. They are trying to sell as expensive as possible but also have to consider port capacity, existing sales/available supplies and the needs of long term customers.

Then there is the middle person - the multinational who puts together the freight portion and perhaps acts as agent for the India buyer to get the cheapest price possible. Hence the term optional origin - the multinational makes the sale and then becomes responsible for finding the wheat for the Indian and delivering the grain to the buyers port within the specified delivery period.

So who initiates the conversation? The CWB has likely been in India doing market development so contact could come this route. The Indian buyer could be the one who initiates contact with the CWB. The multinational could be the one who works to put the business together (similar to what a broker does here).

Strangely the port forward stuff is basically the same whether open market or single desk. A buyer needs to purchase product to meet a need. They think delivered their processing center. The seller wants to sell grain at close to point of production. The multinational is the one who facilatates the transaction by providing services to both the buyer and seller. Each has has role. Communications goes on between all three. Nobody trust either of the other ones. Business is done every day in this world of confusion as Burburt likes to refer to it (has occurred since the beginning of time).

Will leave the discussion about the ability to capture premiums/force costs out of the system and price discriminate to our board supporters. Where the real problems occur in the CWB system are Canadian ports backwards and the pricing/delivery signals that are provided farmers. That is some of what tom4cwb is alluding to but for another thread/a less busy time than harvest.

Will look for other help on explaining.

[charliep]

chaffmeister beat me to the punch. Perhaps the only question I have is the CWB ability to book freight and from there actually tender on sale.

[charliep]

One question you asked that I don't think either chaffmeister or I answered.

Did Toepfer even talk to the CWB or did they just call Cargill or AU, etc, to secure Canadian grain?

Everyone who sells export wheat in western Canada has to price and source through the CWB. The CWB owns the wheat - not the grain companies. Even from the logistics side (assumed the multinational had a preference for which grain company they wanted to deal with), the CWB will specify where the grain comes from with all companies likely filling the vessels versus only sourcing from one grain company. Some could be sourced via tenders (not likely in this case) but that would be the exception.

[chaffmeister]

Toepfer has a working relationship with SWP, er, I mean Viterra. At least it did - with all the changes going on, I can't be certain.

The relationship is one where Toepfer is essentially the export arm of SWP. Not sure whether they would have included SWP in the negotiations with the CWB or not. I'm sure they would want the terms of the sale from the CWB to be on the basis of FOB SWP terminal in Vancouver - that way, SWP would get the handle. But as Charlie said, the CWB may have other ideas about logistics etc.

[rook]

thanks for your answers and insight.

[melvill]

Oh, the not-so-sweet song of GBFs in the marketplace.

Reports this morning that India's farm minister has said that India has no plans to tender for any more wheat imports. That may be the indicator that recent tenders, at very high prices, have caused enough controversy within the Indian gov't that, building the Indian wheat reserve, is on hold for a while. Or it may be posturing to try to slow down price rises until the next tender. We'll have to wait and watch.

Wondering what a GBF is? Any guesses?