Impact of the Loonie/Ocean Freight Rates on Prices

[charliep]

Just doing some head scratching (maybe wondering why I am going bald) about outlook for the next year.

Two areas are having significant impacts on the prices - currency and ocean freight rates.

Currency - Most agricultural products that are traded use US dollars. It keeps life simple in that there is only one price - a US dollar one. The US is the major currency (at least to this point) so it is used as a reference. There are effective risk management tools to manage the actual currencies for both buyers and sellers in their domestic currencies.

The reason for the long explanation is a commodity that is worth US $100/tonne two years ago would convert to Cdn $155 to $160/tonne while today that same conversion would be between Cdn $120 and $125/tonne. A significant impact on our prices (at least for what we sell in the export market).

Ocean freight rates over the same (S.E. Asia) have gone from US $15 to 20/tonne to current levels of Us $45 to $55/tonne.

Don't know where I am going with this other than to note it. Maybe to a certain extent supporting Vader's thoughts about developing more innovative domestic markets that are less subject to these outside forces.

[WoolyBear]

They say that with everything thats going on this year.....BSE, low grain prices because of either quality or quantity, high energy/input costs, etc, that the only thing missing from really messing up the WHOLE agriculture system in Canada would be higher interest rates.

Everyone else can pass on their higher costs, but for farmers/ranchers, their buyers will just look to other suppliers.

[Vader]

Charlie,

I saw a CWB presentation that showed that Canada is charging China 50.00 per tonne more for malt barley than it was a year ago and the farmer at the same time is getting 25.00 less. A testament to the effect of the change in the dollar and ocean freight.

You mentioned that grain around the world is priced in US dollars. How long will this make sense when the US economy is tanking the way it is. The US dollar is weakening against the CDN$ and the Euro. You were at Grain World in Winnipeg and heard the European speaker on her rant about the impact of the falling US dollar on European exports. They are not happy either.

Perhaps we should start basing the grain trade on the Euro. Is that a more stable currency?

When will China quit pegging their currency against the US$. I know it keeps their exports to the US competitive.

Part of the "strategy" of a falling US dollar is to improve the US balance of trade but it isn't working!

The US is in big trouble and that is bound to rub off on its nearest trading partner. Canada is going to continue to be impacted by the fallout of the failing US economy.

[Incognito]

Vader:

You are the CWB presentation...geez.

[JD4ME]

I continue to wonder why we use "handles" on here,haha
Plausible deniability I believe.
Luckily even if you did use my real name everyone would say "who?"

[TOM4CWB]

Vader;

Take a look at German and French Budgets... almost as bad as the US for deficits.

Low growth in the EU... worse than the US.

The FSU has all the major growth... and the G-10... except for Canada is not in good shape.

As the US$ depreciates... the US become more competitive... Exports will change.

Canada is competitive to about $.85 then major contraction will get us in our economy as we get to $.90... we have not spent on Capital to become more competitive... the higher the CDN$... the more trouble we are in.

If we were smart... we would lock on to the US$... set it... and do what China has done. A set exchange rate.

The US is simply doing now what we did over the last 10 years... now we get the pay back for depreciating the CDN$!

The productivity of the Western EU is is awful shape... as their Euro appreciates! They could soon be in worse shape than the US... if they don't cut spending.

Interesting that the US$ is not as low now as it was in the early 80's... if you look at long term charts!

We will switch to more containers... as container shipping to and from China/S. Asia becomes the shipping system of choice. Insurance has taken many bulkers out of service... we will have to change how we move ocean freight to adjust as the new capacity being built is largely Container ships!

[Vader]

Tom,

Right now I believe that container freight across the Pacific is lower than bulk. CWB malt barley is going by container to China.

What does it cost to get a container out to your farm and then back to Vancouver? Is there demurrage on the container? I understand that the demand for container traffic westbound causes some container owners to demand that their containers be sent back empty for the next load.

[charliep]

Just as a note of interest, my head scratching involved pulse outlook. These issues are affecting all crops.

[TOM4CWB]

Charlie;

On the pulse outlook, dry weather in the Western EU if it continues... could boost pulse prices.

Interesting that eastern SK. hog farms are now being quoted as paying $3.90/bu for feed peas.

Truck freight is going to be a real problem this spring in western Canada.

A wet late spring in the FSU could reduce corn plantings significantly... they have increased 30-40% over the past few years. With Brazil just down 3mmt of corn over last year... feed grains could be more volitile than many thought possible.

Urea from eastern EU/FSU is being shipped to North America... some say this will short the FSU on fertiliser...

50bil will buy the whole US crop... and funds have access to 1.5trillion!

Volitility with this type of money around will make things very interesting!

[parsley]

Some folks are interested in downloading demurage on farmers.

Why isn't the CWB price of grain priced fob farm?

Parsley

[Vader]

In reality grain is priced delivered to the customer. At least in the customers mind. So when a customer like China is looking at buying grain he looks at all of his alternatives and makes his decision based on business principles. Take off ALL the freight and handling and that is the price the producer gets.

You can identify all the price points in between such as FOB Vancouver, delivered elevator, or FOB farm but the end result is the same. No matter whether that producer is in Australia, the Ukraine or Canada.

The sad thing to note here is that where Canada is at a freight disadvantage high ocean freight such as we have today magnify that disadvantage. China is paying 50.00 per tonne more for Canada's malt barley today than they were a short while ago and with ocean freight rates going from 25 per tonn to 75 per tonne and with the dollar going from 65 cents to 83 cents farmers in Canada are netting 50.00 per tonne less than before.

Best solution long term is similar to the beef strategy. We need to do something with a lot of this product here in Canada. Livestock, ethanol, bio-diesel, electrical power generation, and to a lesser extent milling and malting. Consumer demand drives all of these equations and the milling and malting market is a mature market with established players. Not much room to move here.

[parsley]

I realize that "this is the way the CWB has dones business for sixty years",but is it possible to think outside the Government's Wheat Board-CSL Shiplines box?

The point is that business is financially astute and experienced at moving product from A to B. Government bungling and patronage does not facilitate moving goods from A to B cheaply or efficiently, hence, farmers suffer demurage, another needless expense.

Parsley


Business will find the cheapest freight, and work in unison with other businesses to move product economically.

How can farmers lose here? Farmers are paid FOB. Not a difficult concept, is it Vader?

I understand that the demmurage staff at the CWB will be out of a job, but my interest is with farmers' bottom line these days.

[TOM4CWB]

Vader;

At the CWB Caresland meeting the Ontario Wheat P M Board (OWPMB) has been proven to have created a $15-25/t benefit by allowing the industry to handle wheat between delivery to elevators and endusers domestically and internationally.

If we moved to the option of the CWB being paid $1.50/t... on all board grain that is exempted like Ontario does for their farmers... the issue of survival of the OWPMB is NOT an issue.

If all OWPMB grain is marketed directly... and farmers are all getting $15-25/t benefit because of efficiencies the private trade can and do create... the OWPMB has done the best thing possible for wheat producers by exempting wheat sales.

Many larger grain co's own ships, have direct relationships with endusers... know how to maximise currency swings and are responsible for grain quality being delivered to end users.

And just watch the flow back to us as wheat farmers... if the responsibilities for manageing logistics is in their hands... those who are best at manageing this part of the system... because they own it and are it... instead of being cost plus through the CWB.

The OWPMB still has it's monopoly... and can arbitrage that wheat system for farmers if the trade gets out of line by marketing grain directly if the trade get's too greedy. Same could have been the case with the CWB IF they had the intellegnce to step into the new Millenium. We need choices... not a destroyed CWB.

On currency... the CWB is costing us farmer's massive amounts by not allowing the trade to look after this risk... and leaving it with us the wheat farmer in western Canada.

Chairmain Ritter admitted this at the Sherwood Park meeting... by saying the CWB is not an expert at manageing currency risk...

In other words the pool is the tool... and I pay the bill for no viable risk management strategy through the pool account.

Please... we would like to pay you and the CWB to step aside... so we can move foreward with efficiencies back to the farm gate... where appropriate could the CWB at least do this much for us?

[Vader]

Tom, the bottom line in the Ontario situation is that the CWB gets more money from Ontario millers than Ontario farmers do. Once you get that through your head everything else becomes a matter of transportation costs.

Parsley, the CWB is earning more on despatch than they are losing on demurrage so.... get over it.

[TOM4CWB]

Vader,

The OWPMB does not market CWRS wheat.

They market CERS wheat... which has VERY different grade standards than ours out here.

Apples to Oranges... the system the CWB has set up is simply amazing... to set up seperate grade standards in Canada... just for the CWB. 3CWRS can be #1DNS at times... so how is the CWB going to fix this issue in the new DPC?