"Spring harvest" - the wildcard

[jdepape]

John, were you the one on here, defending wheat basis calculations in industry? Basically saying that changes in the Canadian dollar was "included" in the basis? Thus it was ok to subtract Canadian dollar prices from US dollar futures? Not sure how you think you can have any credibility from farmers when you were defending yours, and grain companies, total disregard for mathematical and economic principles. Namely, subtracting numbers with different units (i.e. US dollars and Canadian dollars) and simple economic principle of Purchasing Power Parity. Kind of funny to see these responses. If I sign a basis contract with a Canadian packer, I know exactly what the basis is, and what the impact of currency changes will have on my price.

I think "explain" is a better descriptor of what I was doing than "defend".

The grain industry in Ontario has been setting basis this way for waaay longer than I've been around. There they trade corn, soybeans and wheat - all with futures in USD - and all with cash prices in CAD. and every one of them set their basis as simply the difference between the cash price (in CAD) and the futures price (in USD). Here's a description of Ontario basis I found on the internet:

"Some people might say it's a moving target because the local cash price for corn, wheat and soybeans is the futures price adjusted for different factors such as the value of the Canadian dollar, freight, handling, storage, quality and localized demand."

Also, this way of pricing CAD-priced crops with USD futures is covered in any ag commodity trading course with the Canadian Securities Institute (the place where everyone in the financial industry takes their certification courses).

They do it this way because it makes things simpler. That's it. No malfeasance or "disregard for economic principles". Just like with your cattle pricing example, if you have a wheat basis contract with a buyer, you know exactly what the basis is (as with your cattle contract) and what the impact of currency changes will have on price (the difference is the impact of a change in FX does exactly nothing with the wheat contract, because you have locked in the FX by locking in the basis). When you hear futures are at X, you know exactly where you stand without having to do any FX math.

The price ends up being the same either way you calculate it. (It has nothing to do with Purchasing Power Parity or any other economic law/rule. It is simple math.)

[blackpowder]

One gets a headache trying to understand wheat basis beteeen the various companies. So different. Some wont even tell you. So tired of wheat. Doesnt matter I guess. If you like price sell some. Some people should go incognito to various companies and try it. Selling wheat I mean.
Canola. Not an authority. One local co here saying lock the doors shes going up. Whatever. Canola out yet look a lot worse in last 2 months from road anyway. Dogs breakfast for sure. But whatever was there in Oct count ×.6 - .5 ?

[Cattleman]

You missed the point John on a couple levels. Just because they have done it this way from before your time does not make it correct.

Your last statement is incorrect. If I do a basis contract on cattle when the dollar is 75 cents, if the dollar goes to 74 at delivery my Canadian price absolutely does change. If I am basing my price in the US market, I should be paid appropriately.


Additionally, "the price remains the same either way you calculate it" is further incorrect because if you lock in a basis the way the grain industry does it, and the dollar goes from 75 cents to 74 cents. I may get the same "Canadian dollars" but in the scenario with a 74 cent dollar, when I go to buy a piece of equipment in the US, I do not have the dollars I should have if basis was applies properly. Please explain how pricing a commodity off an American market has nothing to do with PPP. As an actual business person, it absolutely has to do with PPP.

[farming101]

Regarding spring harvest no one knows. wait and see
But if spring harvest canola is important to ending stocks/use it could get interesting
Anything less than 1 MMt carryout would put the canola program in limp mode till new crop

[Cattleman]

John, I would like to get your take if you really think the system is fair? You say it is basic math....

Well I have 10 US Dollars, and 80 pesos. Can I have $90 please. That is the math you are doing. The obvious rule of basic mathematics applies here, that you can't add and subtract different units, but you are defending... I mean explaining that this is legitimate?

Thanks.

[blackpowder]

One hearing a lot that no one wants to buy spring thresh.

[Oliver88]

Due to wildlife droppings will all the canola have to be cleaned?

Sounds like all wheat will have to be.

[seldomseen]

Just my opinion John but this winter was warm melting followed by brutal cold over and over and I have heard people say in the past it has wintered good but I don't think this is the kind of winter that would give you good results. Any other years around here it has not been good.