What is a Premium?

[TOM4CWB]

Incognito,

AWB and the CWB claim premiums into certain wheat markets... over what they say the trade without a monopoly marketer can extract.

Are these values "Premium" or are they fair and normal costs charged to cover special services and risks involved with the sales of wheat into these markets?

Is the CWB and AWB claiming that firms trading grain internationally (other than themselves) do not have the logistical support to offer these services?

I see this on DTN,

Iraq's Al-Jibouri said Thursday he was shocked to read in a local newspaper
comments by AWB Chairman Brendan Stewart about the big premiums the company was achieving on sales of wheat to Iraq.
Also, on Feb. 23, Charles Stott, AWB's general manager of rural services,
told an Australian parliamentary inquiry that the AWB continues to win good premiums from sales to Iraq over other markets.
"I don't obviously want my Iraqi customers to know that we extract very
good premiums from them, vis-a-vis our next best alternative (market),
because of the quality nature of our product and the whole marketing
position we put around our product," Stott told the inquiry.

What exactly does this mean? Iraq grain buyers are Stupid?

Since the CWB says these same things... what do they mean? Are the Japaneese, EU customers.. US buyers... all stupid too?

[sawfly]

the premiun is that when a country wants and prefers a certian wheat eg CWRS. no 1/.14.5 or austrailian white. the boards can price it higher than run of the mill minniapolis exchange wheat.because you cant buy it anywhere else. and at the same time the boards can sell the same wheat at the lower price to those buyers who just would go somewhere else if you charged more.
basically if you want it meet our price

[charliep]

Premiums result when a seller can meet a buyers very specific quality, delivery (i.e. just in time or other requirements) and other contract terms (hedging/other pricing tools). The Japanese premium likely reflects delivery commitments (i.e. ability to provide 25,000 tonnes a week of 1CWRS high protein wheat in store Vancouver) as other components. This commitment has costs:

1) Moving wheat from east coast position to satisfy a customers needs as occurred this winter.

2)Storing grain over a hole year period without necessarily a price committed - example in 2002 when the CWB withdrew from the market in the fall to satisfy premium markets needs only to watch prices erode during the winter/spring(the answer would been to hedge these sales commitments but that is another story in the coulda, shoulda, woulda category).

I also note Sawfly comments on price differentiation. If you want to talk about the premiums in high valued markets, you also have to address how low values are in the discount markets. You also have to look at issues of sales timing/impact on pool returns.

Finally, you have to separate CWB sales activities/impact on overall pool returns versus farmer payments/how market signals are reflected to farmers. Just as a matter of curiousity, if we accept there are premiums in the Japanese market, how is this money distributed in the pooling system? To the growers of Japanese quality 1CWRS 13.5 protein? To the overall wheat ex durum pool? What about the pain when grain is sold into highly price competitive markets?

[TOM4CWB]

Supply and Demand:

What creates the market... some days Japan... when we are short high quality... Wheat, Canola, what ever they need that day that we have.

There are markets that have little affluence... easily switch or substitute from one supplier to another... to save a dime.

This exists in every market in every product! Wheat is not magic nor canola... nor fertiliser... Glyfos... you name it!

And a monopoly is not needed to price discriminate! Chemicals/fert./farm equipment prove this!

People and industries who buy and pay more for a stable consistant high quality product pay a higher price for a reason... to reduce risk... increase productivity... save time... make make this business decision TO SAVE MONEY! Moreover will these people switch to another provider of a product... without the same quality and services?

NO.

These are inelastic markets that will not switch without being forced into a change.

THe CWB Premium is payed for by every farmer in the "designated area" with blood... sweat... and tears.

THE CWB POOL Accounts distort whose benefits go to which producer sale... as a cash price prevents transparent knoweledge of the real world markets.

We cannot know what our products are worth... until the CWB allows daily cash prices that reflect supply and demand in the market.

Then, perhaps we will be better able to know which produce will create a premium on our individual production unit!

Wouldn't this be a good management concept to include in our decision process?

[sawfly]

we have had a good example of a premium market in the last year. the beef going to the USA from cargil and lakeside packing plants. unlimited supply and restricted access to the market.
the premiums in this case are pocketed by the packer, if they had a board the premiums would go back to the pool.
without the board some premiums would not exist and others would never return to the producer.

market power is crucial to price. monsanto has charged double for 10 years by keeping competition out.

[TOM4CWB]

Swafly;

The Canadian Domestic meat market has unlimited beef access and supply... beef prices have not dropped from what I have seen at any store I have shopped at!

If packing/processing meat was easy quick money... cheap beef supplies should be in Canadian stores after close to 2 years to get it there.

Even the bone in cuts that can not be exported as boxed to the US have not dropped in Canadian stores... they still bring premium prices for premium cuts... why?

Now... about price transparency and market signals.

When 1 CWRS 13.5 sells for $250/t port price today, 1CWRS 15.5 sells for $300/t... why exactly should the best cash price avaliable from the CWB be at least $50/t under market price?

How exactly has the CWB helped us, to realise fair market value?

[charliep]

Just as a matter of curiousity, what would be the impact on the wheat sector if a disease equivalent to BSE in plants shut the border down to all exports (karnal bunt would do it although a bad example given not likely to survive this far north). Canada exports about 60 % of the wheat we produce. Of the 40 % that is used domestically, 12 % is processed for human food and 28 % used as feed/seed.

I am also trying to imagine a cattle industry with initial payments/price averaging, contract calls, regulation, etc.

The industry perhaps has learned some lessons on concentration on the processing side. A plus has been a wake up call to create more value/processing in Canada. This is occurring among the big guys as well as smaller processors.

The border will open at some point as well once the R-CALF court action is dealt with. Both the fact the US, Mexico and Canada have agreed to standards plus the changes in Japan to reduce the amount of their domestic testing. Things are going way too slow but there is progress.

[Vader]

It seems to me that many discussions fail to differentiate between single desk selling and price pooling. We can have single desk selling without price pooling.

[TOM4CWB]

Vader;

If it is possible... to have cash prices, without price pooling... why does the CWB require all PPO's to be sold through the pool?

Further, why are the CWB Directors only allowed to pool grain sales to the CWB, if this is possible?