Better Way To Price

[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

[ianben]

Thanks cm
Apology not necessary though much apprecated. I am glad of your experience and knowlegde and the others who try to help us farmers see the light.
We are a stubborn bunch our own worst enemy.
We refuse repetedly to see when people are trying to help and blame THEM for our problems.
This makes me very angry with my fellow farmers.
Can't they see WE ARE TO BLAME!!!!!!!!
We are not a SPECIAL CASE.
Other businesses have similar problems,
umbrella manufactures the rat bait industry I mentioned earlier, all manage to maintain a profitable business
without boards subsidies or futures markets.
Why must we always blame someone else???

Perhaps the truth is just too awful.

We believe we have a right to produce as much as we can and rely on a disaster elswhere in the world to regulate supply.

We believe governments should bail us out if this disaster does not occur or it happens to US!!!!!
They do so only because we have political clout not because it is good for us.

We believe other farmers could not act in a sensible way even when both our interests would benifit.

Worst of all we blame the people who try to help us.

HOW DO WE SLEEP !!!!!
PERHAPS THE CWB IS TO BLAME AFTER ALL.

Regards Ian

[TOM4CWB]

Ian,

If the CWB refuses to admit to reality they are to blame.

If the CWB were to come clean like Ontario Wheat Board did, it would bring a great sigh of releif to Western Canada.

Check out the Ontario Wheat Producers' Marketing Board .com site and to say they have changed for the better over the last 3 years would be a great understatement. They have;

Producer direct exempted sales,

Minimum pricing contracts,

Cash pricing,

Pooling pricing.

All in an open and completely accountable manner.

It has obviously not been easy for Ontario Board staff, and problems occur.

But the Ontario Board stopped the move to dismantle this marketing co-op, in the nick of time. Now Ontario Farmers are reaping the benefit of an open accountable market that works for wheat farmers instead of against them.

What do you think, should the CWB give this a try?

[ianben]

Hi Tom
Yes I can see there are problems with the CWB which need reform.
But this will not solve the problem if young farmers see no future in our industry or cannot borrow the money to farm.
We will become EXTINCT.
Chas says the average age of Canadian farmers is 56.
Are enough young farmers joining the industry to replace them???
In the UK a resent poll of young people put farming as the WORST job,

So Tom instead of starting a new thread on the CWB today.
Check out the MMB story in UK
Consider Wheat for fuel
See if CharlieP could help.
Admit most of what I wrote above is TRUE.
Why do we not learn from others?
Can we never join the 21st century???

Regards Ian

[TOM4CWB]

Ian,

I guess I try to solve one problem at a time.

The CWB has my undivided attention.

If I could market wheat in interprovincial and export trade, for use as fuel, outside the CWB, then this would be a good project to work on.

However, the CWB has complete control over this wheat fuel market.

I still have to come back to solving the CWB marketing problem.

My sons are watching, will they farm?

I do not know. Will we give them enough freedom to be innovative so they will see a future in farming?

[chas]

This discussion has been great for me and has made me see things a little bit differently then when I entered the site. My 26 years of farming have taught me not to get so intrenched in an idea that you can't see another way of doing or another point of view as my wife puts it. Pricing is a huge complex issue involving big money. I can't say I have soften my opinion a whole lot but I think we have all given in a little in consideration of others.
Tom4cwb I have said this on two other threads I like your idea of a Ablerta wheat and barley board to benifit farmers in the way the Ontario board has. I'am also inclined to agree with the provincial board, as to large an area creates to many hard to control problems.
Chaffmeister you stablized the price about $3 to low for a farmers liking. Lets trade wheat around $7 instead of $4. I often wondered why the $4 figure
has to be the price forever. The $7 price would not add any to the retail price of any wheat product that we would really notice. Chas

[ianben]

Hi Tom
I do admire your efforts on reform of the CWB and all the other freedom fighters too.
I wish I could believe it will make a significant difference in the longer term
Reform of the MMB with smaller boards as you now seem to be advocating was a disaster.
When there was ONE BUCKET FULL of milk too much the prices crashed because no one was prepared to dispose of it.
More boards without a solution to the farmers disease can make things worse.

Why must you put all your eggs in one basket and concentrate on the CWB???
You grow wheat AND canola.

Why can you not fight for wheat for fuel or any other solution you think might help at the same time????
I repeat I do admire everybodies passion and determination and would love to see it win.
But is this single mindedness necessary?

Regards Ian

[parsley]

I've been thinking about you in the last few days; there is news of England on the radio, and not good news, with the H & M. It sounds really discouraging for you folks. Really send our best.

Without determination Ian, there will be NO change. From what I get from "inside", many CWB actually staff abhor farmers. They will not instigate any change because they have no incentive, they are very well paid.
The government likes the way it is. The Directors really have no power.
It's the farmers who are going to change this.

And they will.

Parsley

[chas]

Ianben: Thanks for sharing your experence with smaller boards, looks like we should fix what we have. ( CWB)
Parsley: Your last view of the board could be hitting the nail on the head and farmers are the only thing that will change it. This is such a complex issue that its going to make change a very difficult job but that doesn't mean that we will give up. We need some very clear thinking to convince others of the benifits of change. Chas

[chas]

Chaffmeister: Don't disappear from the site. I still need you to stablize the price just a little bit higher. Tell your spectulator friends we could use a little more confidence in the market I would like to go back to California next winter after we get this market all straighten out. The family farm needs a little more sustainability first though. Chas

[chas]

Again, the question is one of value - can a single desk for selected western Canadian grain 'products' (not commodities) make a bigger pile of money out of the pile of grain farmers want to sell each year? That is the intent.

One way to do this is to concentrate on the needs and desires of the end-use customer.

Think of wheat as a product. Canada has developed seven (and soon eight) distinct classes of wheat.

We have arguably the least expensive segregation system in the world, with our grading and variety registration system. These are significant competitve advantages.

How to ensure we can optimize our comptitive advantages? One way is to ensure that investments in market development and technical follow up get made, and that the benefits get captured. Single desk selling does that. When the CWB interests a market in CWRS or any other class of wheat, farmers are assured that their marketing organizaiton will capture that market and they will share the benefit. Not a selected few farmers, but all will share.

Is this the best approach? It is if you think of the CWB as your business. Are there changes to the CWB required? Absolutely. Are they happening? Undoubtedly. Are the changes being driven by elected farmers? Assuredly.

Tom