Dual Marketing

[Fransisco]

Think about it, do you really think there would be trade challenges against the CWB if it actually raised the world price of grain? Or does it maybe have to do with the fact that more often than not it undercuts the market to make the sale? A really easy thing to do when Canadian farmers have no choice but to take the CWB prices.

[chaffmeister]

lornegreene:

Can you explain why a dual market (voluntary CWB) would be "going the opposite direction for the well being of most wheat and barley producers"?

And I'm looking for concrete reasons - not just that you think so, or believe it to be so. Why do you believe it?

I sincerely want to know....

[charliep]

jensend

Just curious if you know how the CWB prices wheat
to customers. I am going to suggest that most CWB
sales are futures adjusted with basis to achieve a
cash price. The wheat basis is not consistent over
time (i.e. the simple adjustment you suggest) but
rather varies to reflect a lot of different market
factors. The difference between the open market
and the CWB (at least for grains that are backed by
futures markets) and the CWB is that the process is
relatively open in the former and invisible/hidden
in the pooling system in the case of the CWB.
Strangely, the CWB farmer client is the most
ignorant of CWB pricing as I suspect most of grain
companies have a pretty idea of basis levels being
used - particularly if they competing for business
as an accredited exporter - there no secrets in the
grain business.

If you are basis, perhaps you can explain the basis
levels used in the fixed price contracts. Where do
they come from? Are they a market signal? Why
aren't CWB FPC basis levels consistent?

[chaffmeister]

jensend:

This may surprise you but grain companies make more per tonne when prices are high.

Even so, the variation in the basis is a reflection of supply and demand - not the grain companies trying to squeeze out a few extra bucks.

[jensend]

and the tooth fairy really does exist. charlie i don't know how the wheat board adjusts its basis. the only reasoning i can come up with is that it is self insuring and is not fully hedged. maybe when the wheat board is gone more people will have to acknowledge how the markets really work. first clue - it's not really free enterprise when dwayne andreas says the competition is our friend and the customer is our enemy.

[Hopperbin]

"the competition is our friend and the customer is our enemy."

When did he say that?

http://www.brainyquote.com/quotes/authors/d/dwayne_andreas.html

[TOM4CWB]

Jensend,

A neighbour wants you to buy a tractor from him.

You have enough tractors already... and don't need any more of them... but the neighbour is short of cash and has bills to pay.

Will you make more money... on your farm... when you buy something you truly don't need... even at a huge discount?

Now you on the other hand... need tractor power to do your work. If you don't get the tractor power... your contracts will not get fulfilled... so you will pay a premium to get the right power... in the right place... cause it will put the whole package together... and clean the deal up with happy growers... and end use customers... that got what they needed!

A bad basis means you are pushing a rope... a good basis pulls grain in to where it is needed!

CWB PPO basis has no effect on CWB sales one way or the other... quota calls bring all grain in... and the CWB basis is the result of a formula... that is created to deliver grain to the pool accounts... with the least possible cost to the pool... to try to emulate a pool with no cash pricing available in competition with the pool.

There is truly no comparison between the determination of the CWB PPO basis... and non-board basis levels... because the CWB NEVER uses the basis of a PPO pricing... in a back to back sale... if it did happen... it would be pure coincidence!

All PPO grain is sold to the CWB pool... not to customers.

[jensend]

TIME Magazine
October 28, 1996 Volume 148, No. 20
-------------------------------------------------------------------------------
Return to Contents page
-------------------------------------------------------------------------------

THE FIX WAS IN AT ADM

A RECORD $100 MILLION FINE FOR RIGGING PRICES MAY ADD UP TO THE END OF THE
ANDREAS FAMILY DYNASTY

JOHN GREENWALD

No one expects Archer-Daniels- Midland to change its advertising slogan from
"Supermarket to the World" to "Price Fixer to the World." But that sobriquet
would fit in the wake of the agribusiness giant's $100 million plea bargain
last week with the Justice Department.

After years of denying any wrongdoing, the company pleaded guilty to conspiring
to fix prices for the livestock feed-supplement lysine and for citric acid, an
additive found in products from cosmetics to soft drinks. The $100 million
fine, the largest ever levied in a criminal antitrust case, was more than six
times the amount of the previous record settlement. Further, ADM will pay an
additional $90 million to settle civil suits. "In essence, greed, simple greed,
replaced any sense of corporate decency or integrity" at ADM, said Joel Klein,
the acting Assistant Attorney General for antitrust.

The plea bargain turned ADM (1995 sales: $12.7 billion) into an informer for
the government. In exchange for immunity, company officials agreed to become
witnesses against other firms under investigation for conspiring with ADM to
rig prices in the $1.2 billion citric-acid market.

ADM employees may also be called on to testify against their own, notably
executive vice president Michael Andreas, 47, longtime heir apparent to his
father, ADM chairman and CEO Dwayne Andreas, 78. Prosecutors are continuing
their investigation of both the younger Andreas and Terrance Wilson, 58, who
heads the ADM corn-processing division. Neither was granted immunity--meaning
that both could face indictment. ADM said last week that Andreas was taking a
leave of absence and that Wilson had decided to retire.

Importantly, the Justice Department will not pursue a potentially larger case
against ADM for fixing prices in the market for high-fructose corn syrup, a
ubiquitous soft-drink sweetener. This $4 billion industry is nearly four times
the size of citric acid, and some consumer advocates have charged that shoppers
pay higher prices for soda because of ADM's practices.

The Justice Department's case hinged on a company executive turned FBI
informant, Mark Whitacre, who secretly taped meetings that allegedly included
the younger Andreas, Wilson and executives of rival companies. "The competitor
is our friend; the customer is our enemy" was a favorite saying around ADM,
according to Whitacre. Such talk ended when the feds raided ADM's Decatur,
Illinois, headquarters in June 1995. Although the company fired Whitacre and
charged him with embezzlement, which he denies, and although Whitacre later
attempted suicide, the case was strong enough to force ADM's directors to
capitulate.

The plea bargain was a public humiliation for Dwayne Andreas, a political
insider who has funneled millions in corporate contributions to Republican and
Democratic candidates. Andreas has particularly close ties to Bob Dole, who has
used ADM corporate planes for campaign trips and vacationed with Andreas in Bal
Harbour, Florida; Dole and his wife Elizabeth purchased an apartment there from
Andreas. Dole has championed myriad agricultural subsidies that have benefited
ADM. With Dole's support, Washington has paid out more than $6 billion in
subsidies since 1980 for ethanol, the corn-based fuel that ADM makes; it holds
a 65% share of the $1.5 billion ethanol market.

Andreas had to face down a shareholder revolt last week at the ADM annual
meeting in Decatur. Declaring that "as Harry Truman said, 'The buck stops with
me,'" the chairman apologized for the scandals. Nevertheless, the settlement
put paid to an era at ADM, which Andreas and his family have dominated for 30
years. It appears unlikely that Michael Andreas will ever succeed his father.
"Even if this is not the end of ADM," says a close business associate of
Dwayne's, "this could well be the end of the Andreas reign."

For the company, last week's penalty represented little more than peanuts--or
soybeans--and was a good deal, considering that ADM benefited financially in
the form of higher prices. The company has $1.3 billion on hand to pay
inconveniences like a $100 million fine. ADM's stock even rose $1.13 a share,
to $21.75, on news of the penalty--which Wall Street had expected to be much
higher--and finished the week at $21.50, raising the company's market value
some $500 million. By that accounting, it can't be said that crime doesn't pay,
only that it is a cost of doing business.

--Reported by Sally B. Donnelly/Washington and William A. McWhirter/Chicago

[chaffmeister]

I find it fascinating that when it comes to grain marketing, for those that like the CWB (jensend and Jagfarms), "good" messages are embraced about the CWB and "bad" messages about the CWB are rejected. The blind faith is so complete that any "good" message about the open market system is rejected because it doesn't fit with the glossy view of the CWB. Same goes for any "bad" messages about the CWB.

A dual market can't work:<b>accepted</b>

A voluntary CWB will work: <b>rejected</b>

A voluntary CWB would need assets. <b>accepted with little reason or logic presented </b>

A voluntary CWB would not need assets. <b>rejected, even though there are many examples and sound reasoning presented. </b>
CWB gets premiums: <b>accepted with no evidence</b>

CWB returns are below crop year average prices: <b>rejected even with verifiable evidence</b>

CWB single desk earns $59 million more in barley: <b>accepted without question</b>

That $59 million reflects a malt premium over feed of $30/tonne when the actual premium averages $25/tonne (suggesting that without the CWB, malt would be worth less than feed): <b>rejected; ignored (because they don't understand?)</b>

In 07-08 CWB made $560 million more for Canadian farmers than American farmers made on the same quantity: <accepted as gospel>

The CWB used incomplete data and the US data was skewed in favour of the CWB (it included sales of lower grades): <b>rejected without serious consideration</b>

CWB system is efficient: <b>accepted</b>

Grain companies make more money per tonne handling CWB grains than non-CWB grains. <b>rejected - even with evidence (public data) that shows it</b>

Grain companies make more money on non-CWB grains when the prices are high then when they are low: <b>rejected by jensend even though he has no experience or evidence to support him. I guess I could explain it to him, but why bother? He's already made up his mind.</b>


Perhaps the greatest impediment to progress in Western Canadian agriculture is the inability of so many to see things for what they really are. For some, the surrender to the CWB doctrine is so complete that they become blind to reason and logic and will angrily reject discomforting facts.

[chaffmeister]

oops. Should read:

In 07-08 CWB made $560 million more for Canadian farmers than American farmers made on the same quantity: <b>accepted</b>

[jensend]

you guys never get it. on property rights alone i think the cwb cannot be compulsory. i'm just pointing out that without the cwb it's not any easier; just a different bunch of thieves. it's not free enterprise - there's a difference between free enterprise and the capitalism we have now - size matters.

[jensend]

say the wheat board goes the way of the dodo and everybody wants to haul across the line. do you suppose there would be a call for cool on grains from somebody like byron dorgan? maybe aided and abetted by american grain co's because they could then have a 'special' canadian price. happened to cattlemen; you wouldn't be immune. i think the wheat board will eventually disappear but it won't signal a bright new world for canadian grain farmers.