Better Way To Price

[freebird]

Excellent analysis, chaffmeister. To pick up on your last point - this whole idea that commodity prices are too low - that is an entirely subjective opinion. For example, western Canada may be worse off without U.S. subsidies because then they would be growing far more pulse crops, which is what is driving our economy at least here in SW Sask.

Commodity prices are irrelevent to the health of the farming industry - land values will simply adjust downward when commodity prices fall. The only reason a farmer would want high prices is if he was interested in selling his land. I can remember in the early '80's wishing that wheat prices would fall. Why? Because I didn't have much land and needed to expand.

If you are not doing well farming now, it's not prices that are at fault, it's inefficiency - most times caused by the farming operation not being large enough to be feasible - and if your farm isn't big enough now, the last thing you want is high prices that will drive up land values.

fb

[ianben]

Hi cm and fb
I am sorry to have to say this ,but to say that commodity prices have nothing to do with the health of farming is bullshit.
It is an insult to the good farmers who through no fault of their own drought or flood, BSE or now foot and mouth, in England. Find themselves financially exposed when prices are low.

Just pray it does not happen to you.

26000 UK farmers have left the industry in 2000. They were not all bad farmers some were big and efficient. One was the biggest pig producer in UK. When you are making a loss the bigger you are the bigger the loss!!
I still maintain the family farm worldwide is unsustainable at present prices.
we need to put a bottom in the market.
Linking wheat to energy prices by marketing wheat as fuel might do this.
If wheat for fuel is worth 50% more than wheat for food why are we arguing? We should be out trying to sell it.
Regards Ian

[chaffmeister]

Please allow me to be very clear on this issue of price. My comment was:
"You can set prices all you like - the truth of the matter is that price is not that important in the grand scheme of things."

Please don't take my comment out of context. Price is only one issue and can be dwarfed when other "marketing" issues become part of the mix. TO put what I was saying in other words, you won't necessarily keep your business on price alone.

With respect to comments made by other writers, it's really not my place to explain what they meant - I'll leave it up to them. But I will say that price received by producers is very important - isn't the fact that most of these threads are about getting the best prices indicative of that?

cm

[TOM4CWB]

I believe that the management on a farm has control over 2 risks.

1. the control over spending too much on inputs;

2. the control over spreading risk to other risk takers in the economic community, that wish to share this risk with my farm.

If these two tools are used in tandem, most any farm is profitable, over a 5 year period.

Think long term, think positive.

These two thoughts are 90% of the secret of farming!

[chas]

Well freedom fighters you sure ripped that theory all to hell.
Do you suppose farms would be as big as they are today if someone would of had some foresight into stablizing prices and supplies to some sustainable level.
What is a sustainable price, well I quess subsidies try to answer that question.
Remember the land won't break you but machinery and cutting crop input will.
Tom4cwb where is that guy that will take on some of my risk without me bending over backwards.
For a farmer to do well another farmer has to have bad luck. Sounds fair to me. Let the country with the most money win. We can price our way right into the poor house. Chas

[chaffmeister]

Chas you asked Tom4cwb: "where is that guy that will take on some of my risk without me bending over backwards".

Although it is not my place to answer for Tom, I can say with certainty that I am one of those people who would accept the risk Tom is talking about. Yes, I and many other speculators in the world will gladly take on some risk with the goal of achieving some reward. Believe it or not, what you as farmers get out of this is two things: (1) more stable prices and (2) the most efficient pricing system known to man.

It's misinformed to think that the futures markets were designed by grain companies and that their activity in them keeps prices low. The fact of the matter is they were developed to stabilize prices. Years ago (turn of the century and before) grain markets were wild - at harvest the glut of production would overwhelm buyers who would run out of storage, driving prices down dramatically. Later in the year, when stocks were tighter, prices would skyrocket, frustrating everyone - NOT THE LEAST, FARMERS.

Pressured by some astute farmers to get them to buy their grain for shipment later in the year, grain dealers started to bid for grain from farmers for spring delivery - with a higher price to provide for storage and the incentive to hold the grain until needed. The buyers liked it too because then they could buy a whole year's worth of grain at a determined price and not have to take it all in the fall. The buyers got a lower price, the farmers got a higher price (and guaranteed shipping). Together (farmers and grain dealers) developed the first forward contracts. but there was still quite a bit of risk in these contracts - what price should they use if there was no buyer on the other end? The grain dealer could take one side (buy from the farmer without any sales to buyers) but then he was taking a risk. And for that, he would charge a fee (lower the price to the farmer). The best thing for the farmer (and the buyer) is to have some way to lay off this risk.

From forward contracts then came the first futures contracts. With futures contracts came one more important dynamic - the ability for speculators to provide liquidity. Now, when a grain company needed to sell something to compensate for any drop in price before he could sell the farmers grain, there would be someone there to buy it. Without the speculator, the grain company would not be able to sell their hedge as easily, probably forcing the price lower. This would then result in his bid price to the farmer being lower. Speculators allow for the commercial players in the market (farmers and dealers and buyers)to transact without pushing the prices all over the place. The result - price stability, price visibility and efficiency. The price? Lower risk premiums charged to you (lower transaction cost). And this applies to CWB grains too.

So Chas, don't be so quick to criticize the developers of futures contracts - they were farmers just like you. And please don't be so quick to criticize speculators. In that community, there is a saying: "the greatest risk-taker is the farmer", and it said with a great deal of reverence. We speculators have a great deal of respect for farmers and the risks they take. It would be appropriate for farmers to accept and acknowledge the role that speculators play in stabilizing prices and helping to provide price visibility. You may believe that speculators take money out of your pockets - I believe the exact opposite.

cm

[TOM4CWB]

Chas,

I have forward contracted my Canola for next fall, when the Nov. 01 futures was at about $295.

A couple of weeks ago, I boought back my canola that I had sold by buying $300. Call options in Nov. 01.

I paid some speculator $9.00/t and was really happy to have sold my Canola next fall for now what amounts to $275./t minimum price contract. If the price goes over $300.00/t, I get any market rally until the 3rd week of October. If I don't have a crop, my call option will pay for any higher priced Canola that might have to be bought, should everyone else be short of Canola!

Now the marketers of my Canola can start planning sales, shipping, and all the other logistics that are needed to get the most efficiency out of our system, 6 months before we will ship this Canola.

This is way better than a CWB pool because I can have an assured price, pay my bills, buy my crop insurance, and have a way better income than GRIP for much less cost.

TO some extent I can start to do this with the CWB. However the imagination of the people who are putting together the CWB programs is being stifled by the CWB directors and or Ralphee G.

Instead the CWB are miles from running a competitive market that is even close to Canola. Is this intentional?

Does protecting pooling mean "do a poor job on fixed price contracts" so everyone will see how good pooling is?

I must admit that this is where I end up on some days when I use CWB Fixed Price Contracts!

What is wrong with making a profit on our farms Chas?

[chas]

Chaffmeister; I gather your a broker. I know how the market works, it stablizes the price at the l920's happy prices. Every thing else in this world has gone up 20 times or more by now. Your idea of stablity and my idea are about $3 a bushel a part. Your system is not working, subsidies have to be applied in alot of exporting countries. Why should exporting countries subsidies countries who have money for arms but not enought to feed its people. Low food prices don't feed the hungry of the world. Their countries need a total economic and political make over. Farmers need some reality prices.
Tom4cwb you made some good moves there under the market situations we have today. I have used the market in the same way but the really of the open market price is that it leaves us living off depreciation half the time.
I'am getting older, I wasn't born with a silver spoon in my mouth but with a shovel up my ---. You and CM are younger and smarter and have a wealth of information can you in vision a more stable realistic pricing system than the one we got now. Its not working for most farmers around the world. Can you see my point. Canola at $6 doesn't make alot of payments for a young farmer but who said we needed them anyway. Chas

[ianben]

Hi everybody,
cm a small apolergy to you I thought you were a farmer. I wish you had told me sooner.
I understand to a speculator the price is of little importance, you are only interested in the movment of price up or down does not matter so long as you back the right side.
You are right though futures are the best solution yet to our problem. I admitted this earlier in another thread.
You are an example of the speakers at that pig meeting. People who try to help but we refuse to listen. SORRY.

Futures cannot always help though
BSE for example or repeated good weather around the world which, bring down prices for long periods.
When these things occur we both loose
you and I.

Has anybody in Canada done anything to minimise the risk you took when you started to grow GM.

They told us BSE was safe you know. We got some compensation but it is still affecting profits today.

Could grain for fuel help here? At least you would already have another market for that unsalable food.
Would that not be good risk managment Tom and cm????.

I do believe U.K. is worth a look to see the future. Events have pushed us along quicker.
You should be able to learn from some of our mistakes. Look at what has happened since our milk producers sc****d the MMB milk marketing board. Fine for first two years then prices crashed. Now supermarkets have got together and offered 2p/litre more so long as it ALL goes to the producer.

Who is the ENEMY now?????

The BIGGEST milk producer 3000 cows,fb, lost £800,000 last year and was going to sell up before foot and mouth struck.

THEY ALL WANTED FREEDOM TO SELL!!!!!

Sometimes you can be too close to a problem to see it.

Regards Ian.

[chaffmeister]

Ianben:
I appreciate the sentiments but it is I that owe you an apology. When it was apparent that you (and others) thought I was a farmer I should have corrected you then. I hesitated to explain myself because I thought that my comments would then be discounted - "what does he know, he doesn't even farm".

I will never try to tell you guys what is the best way to do anything related to farming. But my whole working life has been dedicated to working with grain markets (23 years of it) so on the same token, I hope that you allow me to share with you what I know and allow me to ask some pointed questions to help reveal what is really going on. My intent in participating here is to provide a different point of view - based on facts and analysis. You all have every right to take a philosophical position based on your experience and I respect that.

I am not anti-CWB (although Tom Halpenny may think so!) - I just beleive that if the CWB has a good story to tell, they should be telling it - and I don't think they are. And guys like TOM4CWB reveal a lot of questions that do not receive satisfactory answers. So I become skeptical.

Ianben - To be clear - I believe price DOES matter. What I had said was that in the global marketplace, you may have the best price but still not get the business because other issues are at play. Please don't mix my comments up with those of freebird.

Freebird - you may like low commodity prices so you can pick up land cheaper, but I assume you like being sustainable too. If prices are so low that you can't make money farming, you better not buy that extra land.

Chas - I respect your frustration, your experience and your point of view. We each have our thoughts on subsidies, global farm cooperatives, the commodities markets, and the efficacy of the CWB (just give me proof!). I enjoy the debate.

And no, I'm not a broker.

cm