CWB Fixed Price Contracts

[rsomer]

1) An interesting question. I believe there is a correlation between the amount of debt a farm carries and the amount of yield risk in a given area. Although we do use debt financing on our farm (as I am sure most do), I think we are fairly conservative due to our yield variability. As well we practice some cash flow risk management by remaining diversified with cattle which produce something to sell every year. 2) Now lets see, if we compare the half wit cash farmer who doesn’t use any planning with a financially astute forward thinking neighbour who plans his sales in advance using prepricing tools, which one will have more income after ten years. Duh… Charlie, you are comparing apples and oranges. Lets assume instead that both neighbours were aware of their profit targets/breakeven analysis and cashflow needs during critical times of the year but one farmer sold his grain after it was in the bin while the other chose to preprice a portion of his crop before it was harvested. After 10 years, I would expect both neighbours to be equal financially. At any given point in time a banker might prefer lending to one neighbour over the other as there will be periods when the neighbour who preprices his production will appear to be very wise and there will be other times when the neighbour who sells his grain at some point after it is actually harvested will have the advantage. 3)I agree that the ability to provide the type and quantity of product when needed is key. How this objective will be achieved will be ultimately determined by the marketplace. I would think that pricing will be the tool used by the marketplace to achieve its objectives. Whether or not we will see genuine premiums for forward contracted grain will depend on whether or not the market feels it can access product some other way without offering the premium.