In the Real World

[WoolyBear]

In the real world we would always want the best price for our product. If we were given a choice of that or a predictable, averaged price, year in year out what would that be? You would have to know of course how much you could produce etc, but it would be something like a "Milk quota" but with out the cost.

[TOM4CWB]

Woolybear;

CWB 2004 prices for our farm @ our farm gate:

#1CWRS 13.5 $5/bu;

Canada Feed Wheat $4/bu;

2 row malt barley $4/bu;

6 row malt barley $3.65/bu;

#2 CW feed barley (48lbs/bu) $3/bu.

The CWB COULD have easily risk managed a high % of pools for 04-05 at these prices.

The CWB could have laid in over 50% of the 2005 crop at these above quoted prices discounted by 15%; easily.

IF the CWB HAD done this for 2004 and 2005, through PPO contracts... then it could have claimed the "single desk" extracted a premium for my farm.

We attained about $8.50/bu for all 2004 canola we produced, and are about 65% priced at average yeilds of our 2005 crop on Canola @ about $8/bu.; 100% 2005 commitment for all Canola produced @ 40bu/ac. is contracted now.

In the real world.

[WoolyBear]

Okay, I guess what I was trying to get across was ...... If you had a neighbor with livestock, be it cattle, hogs etc, and rather than having the uncertainty of the weather, tariffs, etc, knowing that the livestock person would provide some extra storage capacity in the fall for grains. Without taking "profits" at the high end, and not losing your shirt at the low end <like this year> what would be an acceptable price with a firm commitment of X number of bushels for x number of years to provide a fair price in all years for both parties.

IE...... rather than not making the sale at $3 for the barley, or competing with many others at $1.50 a bushel for 46 lb stuff.

[TOM4CWB]

Wollybear,

If you can grow 100bu/ac plus on an average year, as we can do with Bold semidwarf 2 row, and produce 52lb/bu on an average year... which we have averaged over the last 5 years with this variety... over 90% plump... I would say $2.25/bu would pencil out a reasonable price for both parties.

THis would be delivered at your neighbour's yard... December 1st... premium for spring delivery on interest and storage, direct off the combine a 15 cent per bushel discount.

Just a thought on risk management.

There must be a seller's (you) weather clause... production contract for protection for weather related production short falls... with a buyer's (your neighbour)cash purchase opition first right of refusal on production over 100bu/ac.

Is this what you were getting at?

[WoolyBear]

Yes

This way those that can do, and we're all happy doing what we do.

Thank you.......

[TOM4CWB]

Wollybear,

I would suggest that Crystal CPS wheat be on 70bu/ac, @ $3.40/bu.

Same terms as the barley.

[cowman]

Tom: I doubt any grower in their right mind would want to sign a long term deal for feed barley at $2.25(I would think you are quite low)? Do you have a crystal ball and know what deisel, fertilizer, seed etc. is going to be 5 years from now? And I guess we all know how weather can affect yields or quality real quick?
I would suggest you were very bold to contract a 40 bu. canola crop at $8 before it is even in the ground? I sure hope you have some kind of weather protection built into that deal?

[wd9]

I could contract canola production with say ADM for the next 3 years, contract my input supplies for the next 3 years for canola production and determine my ROI for a price to begin dealing.

I'd love to do this, however it all falls apart because of the weather risk. Any other industry seems to be able to contract and set price. The thing I can't figure out is how to minimize the weather risk against delivery of contracted product over the 3 or 5 years.

[ianben]

Other industries do face the same problem of variable production or demand some weather related like us and others income related as buyers needs alter?

How do they overcome this problem?

Some I would surgest are prepared to hold stocks.
Is this where farmers go wrong?
Empting bins in the hope of filling them
every year. When being prepared to keep a percentage as insurance would manage both parties risk and give us more average prices.

This is what I understand Tom can do using his marketing skill but it seems complicated and high risk even speculative to me

Why even grow a crop if a profit can be made without?

[TOM4CWB]

Guys;

On $2.25 barley;

When I take a historical price, net the crow out, look at where the CDN$ is going... and where we are on our historic yeilds... this is a fair average price. Risk management can easily make another 50 CENTS per bushel.

My suggestion was for a production contract... if no production, no penalty. We do this kind of contract all the time in canola now. SHOP AROUND! WE HAVE NEVER PAID ONE CENT TO CANCEL A BASIS CONTRACT IN OVER 20 YEARS, DEALING with 5 different majors. I find if we are honest... they are fair.

There are so many options, weather rainfall contracts, ways to offset risk that our forefathers never dreampt of... we are badly spoiled... in relation to many other countries in the world and what farmers must deal with there.

Maybe the short sunlight days affect our minds...

[Ajax]

cowman,

I didn't see where Tom said he priced 40 bus an acre @ 8.00 for crop in the ground. He stated "about 65% priced at average yields of our 2005 crop on Canola @ about $8/bu". Even if his average yield is 40 - that is still only 26 bu/ac. A little bullish but quit obtainable. Crop insurance a little creative marketing to cover a market rise and one doesn't even have to worry how move it when space gets tight. Sounds like a smart way to move grain.

As for $2.25 barley, no one will get rich. We would all like to get $3 but if one could have a long term production contract that I could guarantee that I would have cash flow that I can count on that’s ok to.

Storing grain long term has it’s own risks, maybe buying options would be an easier way to make sure that one has the ability to fill a contract.

Ajax

[katoe]

TOM4CWB,In the real world, as you know,5.00 plus wheat was available for the 04-05 crop year with a cwb fixed price contract. For eg. on May 4/04 the fixed price was 237.70 or 6.47 bu.It netted 5.39 bu.into a car and money in the bank.No risk management available?

[nw9flynn]

The fixed price contract is a excellent tool that many farmers never use. Last years price is a great example. I'm not saying that farmers should lock up 100% of their production but producers should look at locking up 10% for at least some kind of protection from falling markets. I know I am.

[onearm]

wd9
there is no risk in weather, there is a 100 % chance of it. true partnerships between buyer ands seller would be more than 3 or 5 years and would have built in balances. But you would lose than chance for the big score and this is what you are really scared of; missing an opportunity to make more money.