Marketing Solution to Farm Crisis

[chas]

Like Charliep and ianben I would like to see some positive ideas on solutions to a world wide farm crisis. Lets not dwell on the past but keep it in mind while we develop the future. The problem is bigger than anyone country or marketing system.
1. How do farmers stablize prices and supplies in grain and oilseeds, Marketing Agencies or some other form of control?
2. Does the open market price our grain or does it market it. Think STABIlITY. Margin between imput cost and final price.
3. If we could develop a marketing system could we convince farmers and governments of the world the merits of it?
Chas

[ianben]

Hi Chas
I am sure there IS an internet based solution somehow.

It would work like money. We dont feel the need to spend every dollar in fact we bank them.

It would be the same with grain if we had stable prices. The grain unsold would be like money in the bank perhaps even better.

As a boy on that MF780 my dad and I dreamed of a better combine with bigger tires and a better knife drive. In our wildest dreams we did not see the Case2388. You guys built the 2388 help me make this dream come true

A sleepy Ian

[chaffmeister]

Chas:
I placed message on a different thread, but I think I was still thinking about your questions and comments on this one. So here it is again (saves you from searching for it):

You say "Fixed pricing and future markets are our biggest problem in gaining sustainability. They actually keep our prices low and cause surpluses in higher priced commodities."

Question #1:
What do you mean by fixed pricing?
If you mean what I think you mean, I am not sure why you would say that it is a problem in gaining sustainability.

As for futures markets, they lower price risk. Since risk is a cost, futures markets lower cost (not price). Without futures markets, the industry (open market and single desk alike) would require a higher risk premium - buyers pay more, producers get less. (Yes, the CWB uses futures. (and options!))

The futures markets don't push prices lower, they simply reflect the price based on the balance of supply to demand - economics 101.

Here's some food for thought regarding sustainability:
1. Do you really want to support prices in the way you described - "so we get what our commodity should be worth considering inflation"?
Remember the adage "the cure for high prices is high prices; the cure for low prices is low prices". It seems to me that to get total cooperation among farmers to support prices is impossible. Human nature says so. If wheat is worth $8.00/bushel in Canada, then it's worth $8.00/bushel elsewhere too. The only way around that is through government involvement. Higher prices will only mean higher production (somewhere).
And what about feeding the world? Acting to raise prices only means more people can't afford to buy.

2. What about looking at farm structure? For years, farms needed to get bigger and bigger to remain sustainable. Don't know if that makes sense anymore - how big is too big? And with prices where they are now, "quantity" of production may not be the best answer anyway - perhaps the answer is "quality".

I see a future where farmers own and operate farms in different parts of the country, or even the world. Get ten or more guys together to form a farm corporation, their initial investment is their farm. As a group, they form a board of directors and divide management duties - someone responsible for finance (he's the CFO), one responsible for purchasing (VP of purchasing), another responsible for marketing (VP of marketing), etc. As a group, they negotiate on all inputs, and on sales. They enter into alliances with companies they want to "partner" with.

I'm not talking about just grain farmers either. In the group there could be a specialty bean farm, a cranberry farm that also produces and markets juice, a pmu unit, and so on. And the group would also consider investments in valued added - related or not.

3. Should farmers raise equity instead of taking on debt to raise capital?

4. When I mentioned quality above, I wasn't referring to the quality of the wheat you're growing. I was talking about what it is that you are marketing. Being involved in the conversion of your commodity into a more valuable product is where true sustainability comes from, through more stable returns. Look at Maple Leaf Foods a couple of years ago when the guys in hogs were operating in the red - Maple Leaf had their best year ever. Record profits. What's wrong with this picture!?

There's a guy in North Dakota who grew and marketed flax. Now he markets an "energy bar" made with his flax and other ingredients. He has about 20 people working for him - he manufactures, packages, and markets around the world. Oh yeah, he still produces the flax. But now he doesn't care what the price of flax is anymore because he doesn't sell it anymore.

This is long enough - I'll stop now.
cm

[chas]

Chaffmeister: Economics 101 might work for the large private grain buying companies of the world but its not working for farmers. Grain buying companies established the commodities market to protect their purchasing price plus handling and a build in profit. HE uses the same investment dollar to make several trades on his purchases thus making several sure profits per year on the same investment dollar. The farmer has one shot at making money on his set number of bushels each year, he can't resell bushels created from the same investment dollar that year. Profit is small if any, so a different marketing system needs to be developed to obtain the real price for grains as he has no volume of scale as an individual farmer.
You speak of farmer corportations to market and obtain price for value added. Lets form the biggest corportations in the world, farmer controlled marketing agencies that market and set price to the processors and end users in the world. Lets market all grains and oilseeds through these agencies so prices could be stablized in all commodities to prevent tendencies to over produce in anyone product. The CWB uses commodity market futures now because they are the world price setters. But think how that system creates its price, by large grain companys buying and selling into the future trending the price to remain the same low price for a 100 years. They do not rely on supply and demand so much as they do trend charts created over time. This system does not factor any cost of production it steals production.
Farmers are not responsible for the hungary and poor of the world, let governments be reponsible for suppling food, televisions and computors for them. All I want is cost of production plus a living and a reasonable return to investment.
Adding value at the farm gate has been taken over by publicly traded corportations( if there's a profit to be made) in the hog, poultry and fed cattle industry. Show me anyother profitable value added besides organic farming and market gardening and corportations will have it if risk can be contolled. The only way farmers can profit is to market in volume of scale. No one country of farmers can do that on their own in this market we have now. We need to merge on an international scale to make family farms sustainable both for the good of farmers and comsumers. I know this is not realistic but it is reality. Why does anyone want the open market with it stress of pricing anyway, that grain company that bought your grain is going to sell it for a profit somewhere without adding any more value to it than you already have. I think that profit could be returned to me in large fold by farmer contolled marketing agencies. The farmer that says he knows how to market his own product is kidding himself, even John Deere hires marketers and salesmen to sell their product. I didn't answer all your questions or comments but I'am starting to ramble on, so better close. Chas

[ianben]

Hi Chas
I think we agree, so there are now two crazy farmers in the world. We just need a few more. Like the ones who started zero-till or thought the tractor could replace the horse.

The futures markets are at best insurance for farmers and we all know that does not come cheap.

With the new system the unsold grain will be your insurance as it will be worth the same next year as it is now. It will still have cost but you keep the premium.

Added value,yes, if you see a gap in the market go for it but market. I bet that guy fixes the price of his flax bar and hedges against a sudden rise in the price of flax. That is what futures are really for to protect our customers because we cannot market.

Adding value without this is just spreading our problem to their industry.

There are no futures in comodities with stable prices if people want to gamble they should play the stock market or go to Vegas.

Still not getting any feedback on young farmers, Your JD green way back sounds typical of young farmers over here. Angry and depressed!

I have two sons 13 and 15 they need to see a future now or I will be the last Bennett to farm.

How due Tom, and the ones who think this is impossible, see young people taking over in future?
Are we just living on past profits and sod the future?

If I do nothing I am sure I am.

Regards Ian

[TOM4CWB]

Ian,

I invest in my farm only so my boys will have the opportunity to farm, otherwise there would be easier ways to make money and enjoy the rest of my time left on this planet.

But farming is part of my contribution to humanity, and my faith in God.

I beleive we make our own decisions and are therefore responsible for what we do and have decided. I want it no other way!

If my boys decide to farm I will have invested wisely, if not, well I tried to the best of my ability.

This is why I must work for freedom of choice, so my boys will be able to be responsible for their own decisions!

I hope you can see, choice involves the chance of both good and bad things happening. The challenge is turning what appears to be a bad thing into a good thing that builds humanity up and makes this world a better place!

[chas]

The challenge is making good thinks into better things and humanity will build on itself with cooperation and trust in everyone. Freedom is the choices that allow all of us to be healthy and prosper together not make hired men an peasants out of us for the gain of unassuming corporations. Corporations create wealth but which way is it flowing. Chas

[chaffmeister]

Before I add my two cents worth here. I'd just like to say that I really enjoy these debates. And although I may not agree with some of the comments, I want you to know I respect your opinions.

Chas and Ianben - you sure threw a lot out for me to think about. But, since it's about 1:00 a.m. right now and I have my 6 mo old son in my arms (making it hard to type), I will make this short and add some later.

My view of the futures markets is quite different than yours. I truly believe that the farmer is the greatest beneficiary of futures.

Grain companies did not invent futures markets. In fact, most of them would say they would rather not have them at all. Futures markets not only reduce risk and stabilize prices, they also provide price visibility. Grain companies can make more money if you don't know the real value - futures keep that from happening.

Most grain companies hedge everything they do. Their bottom line does not depend on the price of grain being kept low. When they buy from farmers they sell futures; when they sell to end users, they buy futures. All they care about is the basis.

Speculators cannot push the market wherever they might want it to go. They can have their fun for a while, but the fundamentals will always rule. Nothing has been pushing prices low since 1996 but supply and demand.

Re Ianben's comments about the flax farmer: "I bet that guy fixes the price of his flax bar and hedges against a sudden rise in the price of flax."
I am afraid I didn't make myself clear. This guy has no reason to hedge his flax because he really does not care what the price is. He grows it, and then uses it in the production of a consumer product. The price of flax is meaningless to him since he neither sells it nor buys it. A sudden rise in flax prices will have no imapact on his business. This is what I meant about participating in adding value to what you grow.

Ianben, maybe you SHOULD consider the rat bait business if you're looking for stable prices. "You are your own best customer."

I'd love to discuss the economics of chas's international farm group to stabilize prices, but it's late. Let me leave you with a couple of thoughts:

Farmers, no matter how they organize will never control the grain markets and stabilize prices. As you said Chas, governments will always be involved - wheat is 13% protein, 87% politics. Food is just too important.

If it price stability and sustainability that is the goal, don't try to control the grain markets. Control the value chain - own the farm and the mill and the bakery and the trucks that take the bread to market. Let others worry about the price of raw materials like wheat and flax.

more later.
cm

[chas]

Chaffmeister: Knowing now that you are a young farmer I know your thoughts and feelings about marketing because I went through it in my younger days believing just what you are saying. I felt the same about the commodities market and the CWB as you do. I'am 56 years old,the average age of a Canadian farmer and have farmed for 26 years. I marketed every way you can without breaking the law. To market any grain or oilseeds on the open market should be done in percentages of production over different parts of the year to get an average and fair price, not knowing when the highs and lows are going to be. Idea: pooling and marketing all grain and oilseed through and orderly marketing agency will with out a doubt give you the average price with a premium nearly every time. Your theory on the commodities market was taught to you by brokers and grain companies who make their living by the market. The market was established by grain buyers to protect themselves. Your right they don't care whether the price of grain is high or low but the very way they make trades into the
future keeps prices historically low. The reason people bad mouth the CWB is because of government interference not allowing the southern farmers in Western Canada to sell grain across the border when prices indicate an advantage, which was true in 1998. Now my theory is that it was a niche market for a number of reasons. If we opened the border the niche market would disappear in a flash and we would be in the same boat as we are now with open markets. Do you actually think that the open market would average you more for your canola over five a year period than the CWB could get you under a far superior marketing system. Don't forget the open market does not market grain it only prices it. Value added is impractical on a farm to farm bases, besides show me over 10% return on investment without risk and I show you corporate America. If you want to use the open market get farmers in North America to get together and place a pricing order for their commodities then we might be sustainable. Ontario farmers have a dual market for wheat but they are protesting on parliament hill along with Western Canadians. Some theory we have in our younger days. Remember farming as we know it in the world today was not caused by the policies of the CWB. I believe that I build my farm from setting priorities and keeping realities in mind. I believe it could have been done quicker and better by using market agencies. My two boys and I crop 2000 acres and run a 100 head of cows. I purchased land and equipment from my father at the going price in 1974 when I started.(purchase was fair because I had 6 brothers and sisters who wanted their fair share). Chas

[chas]

God I getting long winded an emotional. Sorry. A retired farmer friend of mind is here and has read all our comments and would like to make a comment so he talked me into writing for him. Here is his thoughts:
Some of you don't trust the CWB. Who do you trust? You are pretty narrow minded if you think an individual Farmer can market his grain worldwide. Canadian farmers have to export most of the grain produced to stay farming.
Also if you think the CWB has to phone every farmer before they can make a sale and market your pooled grain, then you don't have a clue about the competitive world out there.
We elect people to run the CWB and elect people to run Government and have to trust that they market our grain and run this country to their best ability. If they screw up we do not elect them for the next term(that is the way democracy works in this country of ours).
Some of you would like to park the CWB on the shelf and only use it if you get yourself into trouble or need an interest free loan to help put your crop in. No business can operate on that "IF" bases.
Most farmers have to sell grain to pay bills and without the CWB pooling the gamblers would be waiting in the shadows to buy your grain at their price.
Some farmers and the same with alot of people in this country think the Government should phone them before they make any decisions. Also the same people would say don't touch my wallet and not in my back yard, but I want all the free services.
We have a free trade agreement with the USA and if the CWB did not police the grain exports, our government lawyers would spend a lot of time in court to rectify the problems a few farmers created.
Majority rules in this great democratic country of ours. Steve
You can tell I didn't write this as spelling is good and each sentence doesn't trail into four thoughts. Steve has worked in business far removed from agriculture, he owned his own survey company before his farming days. He contracted work with oil companies and sysmic firms, hired alot of men and equipment. He had to deal with government and enviromentalist to make his company prosper. I do value his opinion. Chas

[parsley]

Hello Chas,
Let's examine Steve's logic:
This is Steve's statement, "Majority rules in this great democratic country of ours".


The majority of men in Canada at one time said that women could not vote. These men were democratically elected too. They considered that women were not persons, and therefore could not vote. Was the majority right?

I'd be interested in Steve's response. Remind him he might have to look for a hotelroom.
Parsley

[chaffmeister]

A response to Chas and Steve:

Re "pooling and marketing all grain and oilseed through and orderly marketing agency will with out a doubt give you the average price with a premium nearly every time."

Not necessarily - please read my comments in the thread titled "Pricing Versus Marketing".

Re "...the very way they make trades into the future keeps prices historically low."

With all due respect, if the grain companies have so much influence over prices and keep them low, how do you explain the high prices in the early 1970's, 1988, 1994 and 1995/96?

Re "Do you actually think that the open market would average you more for your canola over five a year period than the CWB could get you under a far superior marketing system."

Yes.

Re "Value added is impractical on a farm to farm bases, besides show me over 10% return on investment without risk and I show you corporate America."

The more than 1200 farmers who own Dakota Growers get more than $6.00/bu for their durum after its been turned into pasta - year in, year out. Do you think they agree with you?

Have you ever bought Sun-Kist oranges, or Ocean Spray cranberry juice? Both are owned by the farmers supplying them.

Re: "Remember farming as we know it in the world today was not caused by the policies of the CWB."

Agreed. The CWB is not the enemy. I'm just not convinced that they are the solution.

Re "You are pretty narrow minded if you think an individual Farmer can market his grain worldwide."

I agree. Farmers should not try to market worldwide. They are wiser to pay someone to do it for him. However, the CWB has not yet proven that they are the ones to do it.

Re "...if you think the CWB has to phone every farmer before they can make a sale and market your pooled grain, then you don't have a clue about the competitive world out there."

I'm not sure where the idea of the CWB calling farmers comes from. Did I miss a thread?

Re: "We elect people to run the CWB and elect people to run Government and have to trust that they market our grain and run this country to their best ability. If they screw up we do not elect them for the next term."

Agreed. but how do we know if the CWB has screwed up?

Re "Some of you would like to park the CWB on the shelf and only use it if you get yourself into trouble or need an interest free loan to help put your crop in. No business can operate on that "IF" bases."
Sorry, but I disagree. Every business out there operates on the IF basis. Every successful company out there knows that IF something better comes along, they are out of business.

cm

[chas]

Chaffmeister I like your reasoning because I think you proved one point for me. The North Dakota farmers have proven that if you remove yourself from the open market, price stablity can be accomplished and possibly supplies could be managed also. My thoughts could be changed about the CWB in one way lets put domestic sales of wheat and barley on the open market to create the very thing that is happening in North Dakota. If like industries can be created here to stablize prices for farmers I'am all for it. Lets leave exports to the CWB as we want to keep as much value added here, lets not take it across the border. I think most farmers want dual marketing to include border acrossings which will cause nothing but grieve with American farmers. I believe the Government of Canada has made policy in the past that favour industry being developed in the east on the backs of Western Canadian. Does that sound like a simple democratic solution that could help our industry. Parsley and Tom4cwb how do you like this theory. I hope you can meet me half-way. I'am trying to find a diplomatic solution to our bickering. Chas

[chaffmeister]

Chas: you're right - the guys down in North Dakota have removed themselves from the open market (at least on the portion of their crop tied to their investment in the pasta plant). The flax grower I mentioned a while back did the same thing.

Now that we may see eye to eye on this, the next problem you and I need to solve is how do we get the CWB to give up the domestic market?

And one more thing that we may never solve. How do we determine if the CWB is really doing the job we need them to? you see, I'm still not convinced that they are providing value on exports.

cm

[parsley]

Don't pressure too hard Chas! You're such a likeable cuss, I'm glad I'm not living too close to you or I'd maybe talk you into letting me buy your foundered horse at midnight over that dandelion wine. What about some trial runs? Would this mean you'd be game to let the local pasta boys have a go at it for awhile? No going through the Board?
parsley