To ***kernel:
1.I am not defending any system. I am trying to help you and others understand the futures system by adding my little two bits worth. (By the way, I don’t make my living “teaching or brokering”.)
2.The system was not “invented for buyers not sellers of a commodity”. Large end-users (buyers) would prefer NOT to have the price as visible as futures allows. For example, ADM has publicly stated that they do not support the CBOT and would avoid using it if they could afford to. (They can’t afford to because their competition would have lower costs (lower risk = lower cost) and therefore ADM would not be competitive. Not really the sign of a system “invented for buyers”. Other end users have told me – point blank – they would prefer the cloak of misinformation. Buyers are forced to use futures markets that are well functioning. Why do think it’s so hard to start new ones?
3.You talk about us “boys” not thinking like a producer when it comes to marketing. My concern is that you’re not thinking like a marketer when it comes to farming. I have been trying to tell you things that few (if any) have ever told farmers. But as long as you embrace this disdain for brokers and speculators you will always be slow to accept new stuff that you can really profit by. I’m not a broker trying to sell you something. I am an ex grain trader who is just trying to pass on what I know in the hopes some of you might benefit from it. Please accept it in the spirit it’s given.
To Steve:
1.Hired labour IS the same as any other resource you are using – fuel, seed, chemicals, advise, management services. They all need to provide a payback or else you stop using them.
2.Re basis – trust me, I’m not confused.
3.Basis is NOT simply the cost of handling and marketing. You made the comment “at 0 basis that means he will handle and market your grain at a loss to him and no cost to you”. This tells me you don’t understand basis as well as you’d like. Trust me, it DOES NOT mean he will handle and market your grain at a loss. The thought that basis is simply the cost of handling and marketing is old and was used when all futures contracts were for delivery in terminals – it was easy to explain. But even then it was not completely right. For example, in the old days when canola futures were based on delivery instore Vancouver, country basis levels were often around $40 under (or more). Anybody who thought the cost of handling and marketing was therefore $40 was dead wrong. When country basis levels were $40 under, canola was trading in Vancouver for about $15 under futures – the difference between the buying (at $40 under) and the selling (at $15 under) was about $25. This was closer to the reality of the cost of handling and marketing at the time.
4.A basis contract is not a “bribe”. It’s simply a means of negotiating terms with farmers who may not be willing to accept the flat price at the time. It’s the only part of the price that graincos can negotiate – the other part, futures, is a public price.
5.I don’t understand your “BS” comment that followed your comment about graincos handling grain for a loss.
6.Your comment that GPO’s are “(price advantage for the producer)”. As I’ve said before, GPO’s can (and will) be used by the grainco to its advantage. If you still don’t see this, then I apologize for not explaining it better. If you like them, that’s great. If they work for you, even better. But let me say this: graincos like them too (for the reasons I mentioned before).
7.Re: Basis contract, “price advantage grain buyer”. On the basis of what you’ve written before, I think you mean the grain buyer has the advantage over the seller on the pricing of these contracts. I don’t agree. The futures market determines if you get your pricing, not the buyer. I DO agree that you are limited to the timing of the contract – that is, you are forced to price before the contract delivery period whereas with a GPO it is wide open which is an advantage.
8.90-day contracts – SERIOUS price advantage to the grain buyer. At least we all agree on this one.
1.I am not defending any system. I am trying to help you and others understand the futures system by adding my little two bits worth. (By the way, I don’t make my living “teaching or brokering”.)
2.The system was not “invented for buyers not sellers of a commodity”. Large end-users (buyers) would prefer NOT to have the price as visible as futures allows. For example, ADM has publicly stated that they do not support the CBOT and would avoid using it if they could afford to. (They can’t afford to because their competition would have lower costs (lower risk = lower cost) and therefore ADM would not be competitive. Not really the sign of a system “invented for buyers”. Other end users have told me – point blank – they would prefer the cloak of misinformation. Buyers are forced to use futures markets that are well functioning. Why do think it’s so hard to start new ones?
3.You talk about us “boys” not thinking like a producer when it comes to marketing. My concern is that you’re not thinking like a marketer when it comes to farming. I have been trying to tell you things that few (if any) have ever told farmers. But as long as you embrace this disdain for brokers and speculators you will always be slow to accept new stuff that you can really profit by. I’m not a broker trying to sell you something. I am an ex grain trader who is just trying to pass on what I know in the hopes some of you might benefit from it. Please accept it in the spirit it’s given.
To Steve:
1.Hired labour IS the same as any other resource you are using – fuel, seed, chemicals, advise, management services. They all need to provide a payback or else you stop using them.
2.Re basis – trust me, I’m not confused.
3.Basis is NOT simply the cost of handling and marketing. You made the comment “at 0 basis that means he will handle and market your grain at a loss to him and no cost to you”. This tells me you don’t understand basis as well as you’d like. Trust me, it DOES NOT mean he will handle and market your grain at a loss. The thought that basis is simply the cost of handling and marketing is old and was used when all futures contracts were for delivery in terminals – it was easy to explain. But even then it was not completely right. For example, in the old days when canola futures were based on delivery instore Vancouver, country basis levels were often around $40 under (or more). Anybody who thought the cost of handling and marketing was therefore $40 was dead wrong. When country basis levels were $40 under, canola was trading in Vancouver for about $15 under futures – the difference between the buying (at $40 under) and the selling (at $15 under) was about $25. This was closer to the reality of the cost of handling and marketing at the time.
4.A basis contract is not a “bribe”. It’s simply a means of negotiating terms with farmers who may not be willing to accept the flat price at the time. It’s the only part of the price that graincos can negotiate – the other part, futures, is a public price.
5.I don’t understand your “BS” comment that followed your comment about graincos handling grain for a loss.
6.Your comment that GPO’s are “(price advantage for the producer)”. As I’ve said before, GPO’s can (and will) be used by the grainco to its advantage. If you still don’t see this, then I apologize for not explaining it better. If you like them, that’s great. If they work for you, even better. But let me say this: graincos like them too (for the reasons I mentioned before).
7.Re: Basis contract, “price advantage grain buyer”. On the basis of what you’ve written before, I think you mean the grain buyer has the advantage over the seller on the pricing of these contracts. I don’t agree. The futures market determines if you get your pricing, not the buyer. I DO agree that you are limited to the timing of the contract – that is, you are forced to price before the contract delivery period whereas with a GPO it is wide open which is an advantage.
8.90-day contracts – SERIOUS price advantage to the grain buyer. At least we all agree on this one.
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