July 31 Carryover Decisions as an Investment

[charliep]

I have to pose some questions that are bothering me.

I start off with a comment that no one here has any 2005 old crop left in your bins. You instead have an investment. How many of you have looked at your return on investment for grain/oilseeds unpriced inventory you have carried between crop years?

Question 2 Does in make sense to carry inventory between crop years as an industry decision? It may make sense for individual managers to make this decision (it is their right). It may make sense to ensure sales that have been completed/higher valued customers needs are covered well into the fall/early winter (eg. have enough 1CWRS 13.5 protein wheat to cover Japanese business). Does it make sense to carry 3CWRS (particularly in view of the rally in the market) as an industry decision?

I am looking at my S&D and seeing a 6 mln tonne carryover - up 10 % from July 31, 2005.

[charliep]

I should put in that I am in some way comparing to canola.

Get it off my chest. Canola prices have been crappy. Exports will be over 5 mln tonnes, up 50 % from 2004/05. Crush will be in the 3.4 to 3.5 mln tonne range, up 10 to 15 %. My S&D early this crop year would have had a carryover of 3 mln tonnes. The actual number on July 31 will be closer to 2 mln tonnes (still big).

Thoughts?

[charliep]

Apologize for being boring but I like to put things in writing to help me make sense. The 6 mln tonne carryover is wheat excluding durum.

To go deeper, I look at the July 9 grain stats weekly (week 49).

Farmer deliveries wheat excluding durum to week 49 - 13.5 MMT (almost the same as in the 2004/05 crop year). Exports 10.3 MMT (same as in 2004/05). 2005/06 supplies up 1.2 MMT (mostly carryover from 2003/04). Inventory on July 31, 2006 up over 1 MMT from 2005.

Canola - Farmer deliveries to week 49 - 8.1 MMT, up 2 MMT from same period 2004/05. Exports 5 MMT, up 1.9 MMT from 2004/05 (to week 49). Domestic crush up 500,000 tonnes from 2004/05. 2005/06 canola supplies up 3 MMT from 2004/05 (mostly the monster 2005 production). Inventory on July 31 up 500,000 tonnes from same day 2005.

[TOM4CWB]

Charlie;

I keep hearing trade claims the CWB is very short high quality wheat... handling system looks like it is plugged... can't take the grain accepted by July 31st. Wrong grain for the sales booked, or are we (the CWB) just not selling right now?

[charliep]

What are others experiences in moving grain at the end of the crop year?

It is one of those times I have to admit frustration with the system. Filling the elevator system up with the wrong product. Not having a process for clearing the market when prices are relatively high (realizing that buyers may not pay the full value reflected in the speculative driven futures market). Not having made better use of shipping capacity during the winter/spring (keeping in mind the amount of tough and damp this last year). Not developing better communication systems where grain is more likely to be left on farms until needed.

[carebear300]

I had a bunch of #2 wheat and wasn't able to market any as a #2 during the year till last week, had to take a #3 for it. Right now they seem to have room for it finally thank goodness. Am going to sell it in the new crop year don't think there is too much down side in that move and hopefully some more up. Once again come up with my plan and am going for it. Did a fixed price contract but found out that I am not able to use it on this wheat unless I keep it on the farm and wait for the first call in the new crop year. I looked into the daily pricing contract and am still not confident enough in my understanding to take the plunge this year but maybe by next year. I am babbling(out in the sun to much fixing on a baler) I think it is utter BS
that we have an ultra modern system that we can only haul grain for about two months of the year. I watch five potash trains a day go down our branch line every day of the year but at the best only one grain train. The railways and the terminals have us by the short ones I am afraid.

[carebear300]

Oops goofed up in my last post that should be one grain train a week at the most. Sorry

[charliep]

Talked to one source and they indicated one of the issues with plugged elevators is grain companies loading up with non board stocks so they can blend with new crop/achieve a better spread relationship. With current weather, western Canada is likely to have a better quality/higher protein crop albeit smaller. The protein spreads are not likely to be as wide as well (high protein both sides of the border).

Again I get frustrated by all the games that get played around the end of crop years. Do they contribute to better service for our customers? Do they put more money in farmers pockets? Do they impact the operational efficiency and cost of our grain handling/transportation?