makin' it work 2

[Fransisco]

Agstudent another thought in relation to your concern.

Remember when it looked like marketing choice was going to happen in barley?

The CWB wanted all sorts of money from the feds as compensation because early on in the year when prices were lower they sold barley that they didn't have to maltsters without an offsetting position in the futures market.

Why they do this kind of thing is obvious, the board under the current system gets the grain no matter what the current world supply and demand situation says the price is and farmers have no option but to take the board price.

The exact scenario you describe as a concern is one that regularly happens with the CWB.

[ag.student]

Thanks francisco.
please note i consider myself ideologically neutral on the CWB issue but i'm definitely in favour of people/companies making money the best legal way they know how so please don't jump on me for raising this next point:

what happens to the margin in this example. private grain company buys wheat at say $4/bu, holds it for awhile and then is able to sell at $7. The $3 bucks margin made goes into some investors pocket, not the farmers that grew the wheat.

With the CWB, for reasons mentioned by others in this thread, they can only find a sale at the same time for $6.50/bu and their website claims costs to be around $1.63/bu. That still nets a better return to the farm doesn't it? (My prices are not real in todays markets, but jeez, how do you miss on 50 cents?? heh heh)

Anyway, 'Rider game is over and its back to the books.

The 1.63 came from here: http://www.cwb.ca/dom/db/contracts/pool_return/pro.nsf/WebPRPub/2007_20070823.html?OpenDocument&CropYr=2007-08

[Barleyman]

Agstudent I have been farming more than 25 years in south central manitoba, along the U.S. border. The cwb has never- ever been higher than the open market, never. Grain companies operating in an open market cannot sit on grain to speculate. They have to sell it, and move it, in order to maximize the use of their facilities. They would use the futures markets to speculate. The cwb has never established a price anywhere except western canada, and that is only so far as to tell us here it is, take it. All we want and need is choice, it works for all crops except wheat and barley. The cwb doesn't hold a world monopoly on anything except us.

[chaffmeister]

ag.student:

Private grain company buys wheat at $4, holds it, then sells it for $7. $3 profit from taking the risk and being right. If you think the farmer should get this profit instead of the grain company, then you also have to consider - what if the grain company is wrong and ends up selling the wheat for $3? Should the farmer take the losses as well as the gains? (The right answer to this hypothetical question is “yes”.) But if that’s the case, why would the grain company take the risk at all? Why bother?

Interestingly, what you and I have described, in a way describes the CWB. Whether the CWB makes a good sale or not, the farmer gets the gain or loss. So what incentive does the CWB staff have to really perform well?

To compare properly, you should compare the price the farmer sold and the price the CWB sold – it’s immaterial when the hypothetical grain company sold or what they got. If the farmer held his grain and waited for $7 – he would get $7. Timing is everything.

FYI - the $1.63 you mention about CWB costs aren’t CWB costs –the webpage you gave shows total deductions – freight and handling – not CWB costs.

[chaffmeister]

ag.student: you’re right – multiple buyers compete. Need to be clear as to where they compete.

End-users compete for the product – this is the D in an S/D and is a factor in the “market equilibrium” you mention.

Grain trading firms – elevator companies, exporters, dealers, whatever – compete for the handle. This is NOT a factor in the S/D. It is a major factor in basis. Grain companies translate buying prices to suppliers (farmers) and farmer selling prices to the buyers. Their demand is simply reflecting end-user demand; their supply is simply reflecting farmer supply.

Grain trading competition is what keeps the cost between buyers and sellers low. Grain traders want to sell “at the market” or higher – there is no glamour in selling below “the market” – the price where the supply and demand curves meet. Remember – once you’ve got the sale on the books, you have to compete for farmers’ grain against others who have sold at the market (i.e. higher prices). They’ll have a better buying price (because they have a better sale price) – all else being equal – and you’ll find it difficult to compete unless you shave your margins or find some way to reduce your costs below theirs.

Competition disciplines the market.

However, there is nothing that disciplines the CWB. It can (and does) sell below the “market” – the price where others are willing to sell. And because it doesn’t compete for farmers’ grain, it can get away with it. But farmers pay the price.