Interesting Morning Notes

[charliep]

A newsletter I get highlighted a couple of interesting tidbits this am.

1) The US is buying EU feed wheat for SE feeding areas. They have bought South American soybeans/meal in the current/previous years. Strange world in that kinda like selling ice cubes to Eskimos. No US countervail/anti dumping action on these purchases. As a note, Australia has also been shopping in Europe for feed wheat and will likely buy US corn.

2) A suggestion that EU 15 may expand to EU 25 in mid 2004. Will have major impacts on ag. in Canada/matrix of world grain trade.

A changing world.

[Kasro]

Charlie,

Any idea if there is any subsidy attached to the feed wheat? As far as I can tell, there is none on SA soybeans. But no sigle desk seller in either situation either!

[charliep]

No export subsidy on European wheat. Lots of other subsidies however (mainly of the decoupled sort in Europe - acreage payments decoupled from production).

No subsidies on S. American beans.

[Kasro]

Is it just me? Do I notice that US countervails are predominatley aimed at products marketed into their country via government sponsored or sanctioned marketing schemes? Dairy (supply managed), wheat and Durum (single desk/monopoly) softwood lumber (government priced cutting fees instead of market driven).

In fact do I see that the US is more concerned about STE's than subsidies? Scanadanavian oats enters the US without much a a whimper, yet it is highly subsidized. European wheat, while perhaps its subsidies are decoupled, enters without a tarriff or duty. (No one can convince me that ANY subsidy doesn't distort production.)

Seems to me that the US fights foreign subsidies with subsidies of their own, but fights STE's with tarriffs and duties.

[charliep]

Short answer - yes.

To me this highlights the importance of western Canada moving from a commodity based marketing system to value based. To stay commodity focused we will either have to be the lowest cost producers on the planet (how much more can prairie farm managers trim costs) or get into a government based price support system (how likely is this).

Perhaps this is the most damaging compontent of the current price pooling system. After all the components of timing, quality (including specific traits), location, customers, what signals is a farmer really getting about the value of their product to their customers?

A tough learning experience of this current crop year is the highlight/notion that international wheat trade is in every sense a commodity - move prices too high and customers shift their buying very rapidly with price a more important issue. This has to shift our thinking from bragging about the 70 countries Canada exports wheat currently to the 20 customers who pay for quality and can be depended on for long term relationships.

[Braveheart]

Charliep, other news re world wheat trade is that India and China are currently holding 52% of exportable world wheat stocks. Is this correct? I've heard they are offering it at US $50/ton below the prevailing price and are moving high amounts. Obviously their quality is not on par with ours so it seems that many end users can make do with poorer quality when prices are an issue.

I want to agree strongly with your suggestion that we move from commodity based agriculture to value based ag as quickly as possible. Many of us have hit the wall on lowering costs, and the cost/price squeeze will continue.

The federal gov't believes that branding our commodities with a "Canada" designation and some food safety traceability will bring buyers and premiums. But I believe that what we're seeing in world wheat markets should be an eye opener.

We have to "de-commoditize". We have think about how to use our land and other resources in innovative ways.

Of course single desk selling is an impediment to changing what we do. But is it a problem or a symptom of a problem? Is the prevalance of the CWB a symptom of a certain class of farmer that believes in an oversimplified entitlement to having some management done for him? Or a symptom of something else that is harder to identity?

The do nothing choice is best described by the Chinese proverb, "Man stand with mouth open a long time before roast duck fly in".

Braveheart

[charliep]

India and China make up about 52 % of the forecast 02/03 world wheat carryover.

India is expected to export about 6 MMT, double last couple of years. Not so sure on wheat but India monsoons were drier than normal and non irrigated crop will be impacted in their rabi season (harvest Feb./Mar.)

As the news has highlighted, China found a major amount of inventory. What the news doesn't say is this inventory (even the new one) has declined for 4 years now (using more than producing). Quality and location (even whether it exists) is suspect. If it was some place close to a coast/had quality characturistics that the market wants, it would have been sold by now (South Korea buys corn already from China so why not feed wheat). USDA still has minimal Chinese wheat exports in their forecasts.

The $50/t discount you mention for wheat is not FSU/Eastern but rather Europe. EU soft wheat is US $50/t less than US SRW (Gulf). Perhaps why the US is stuggling to meet export targets and US wheat prices are coming down.

I will leave your other questions for others comments.