Fantasyland 2

[cowman]

A fair price is one where everyone can make some money. Unfortunately that seldom happens. So when one guy isn't making any money he either quits or finds a cheaper way to stay in business.Barley at two fifty is too cheap! But go up very much over three bucks and you will see primary meat producers either seek cheaper feeds or start to downsize. It might not happen tommorrow but it will happen. Many farmers are at the point where they can exit the industry if there is not money in it. Don't forget your main customer...the domestic beef and pig farmer.

[ianben]

Hi cowman
Your fair barley price would be $2.70/80, then I guess from your imput.

What have been your highs and lows in the last ten years, if you don't mind me asking?
Would $2.70/80 be the average price?
Have you ever considered a fixed price deal for barley like Tom and I have with straw?

Would you like to fix your barley price at $2.70/80?

Sorry for all the questions but I think your answers could be very interesting.

Charlie

A comment on options, better here in fantacyland, as your advice above I am sure is sound in todays world.

I liked your relating it to auto insurance as the cost of auto insurance varies as to what and where you drive.

The same is true for options I believe.
The more volatile the market the more the option premium.

Just who does benefit from volatile markets?

Could it be the guys Toms friend works for who made $60 million in a year from corn and soya?
I bet he didn't have much to do with growing it!!!
Probablly got moved to UK because he didn't make $100 million.

Those high profits and premiums could be ours, the farmers, if we could control the volatillity in the market!

Regards Ian

[charliep]

Ian

With apologies for a cheeky answer to your question, my response is the same as the realtor told me the last time I sold a house - a price is what a willing buyer and seller agree to. The price is relevant only until the next buyer and seller who make an agreement on price for a similar house at which time this is the price. The main issue on price is that is is publically available so other buyers and sellers can see it and use it in their decisions.

Consultants in the private sector charge on a per acre basis normally for a complete marketing/financial management servive. Costs for this product are normally in the $2000 to $10,000/farm basis (type of service varying with the fee). Lee and I work for government - still free service as opposed to Europe/the UK where my understanding is that government has basically backed right out/is not providing extension services.

Charlie P.

[TOM4CWB]

Ian,

He didn't get moved to the UK because he made too little, but too much!!

If one person is responsible for $80mil in profits, then if that person lost $60mil the following year, the average person would say that they still did OK.

But the bottom line is that really, they did loose $60mil, and the company already had this profit integrated into its system. They knew this expectation existed, how impossible and unrealistic it is to trade markets profitably all the time, so this person was relieved of his duties!!!

When a new person took over the Brazilian operation, they had no expectation at all that they could loose any money!!

When I trade options and futures, being right is usually followed by being wrong twice!!

The management teams who watch farmers are clear to point out that 80% of farmers who trade futures accounts are nothing more than wild eyed speculators, or GAMBLERS....


Now how do we relate this back to the farm!

In every options transaction I make, I try to squeeze a small profit out of it, because in the past I just used it like Charlie said like auto insurance.

There are ways however to get the premiums back, but it takes time, hard mental work, and paying attention to business!!!

And I must resist the temtation to speculate, instead to only reduce risk by making the trade.

If I increase my farms risk by trading my futures account or by buying options more than I reduce overall risk, then this was a speculative gamble, not the work of a "master marketer"!!

Does this make any sense?

[cowman]

Ian:
Of course I'd like to get a fixed cost like 2.80. I've bought barley a lot cheaper and a lot more expensive over the last ten years but I suppose the average would be around the 2.50 mark. The thing is you have to realize the grain guy has to make a buck too and if he isn't getting a decent return then he's not going to raise any barley and suddenly there is a shortage and the price goes up. I've always bought barley from my cousin and I don't try to beat him down on the price but try to give him a little more because if I don't he might be tempted to grow something else. Barley grows very well in my area and should be the major crop but due to poor prices we are seeing a lot more wheat, canola and export timothy! Especially timothy! I don't know what price barley should be at to make it profitable but I can sure see it's not enough right now.
The thing about barley is it is mostly used right here for the feeding industry and it adds more money to the local economy.Usually this cuts out all the parasites like the CWB, railroads, elevaters, dock workers etc. If it gets froze, or hailed out, or is too weedy it goes into the pit without a huge loss. I do believe in a free and open market but we can't have one sector take a serious beating again and again or we'll all lose.

[ianben]

Thanks for the answers everyone

Charlie
I know what you mean about price just being what a person is prepared to pay on the day.
However how come wheat was £140 in 95 and £60 in 00? Why was someone paying £80 less in 00?
Was it because we didn't fix a price?
When you sold your house. I'm sure your realtor valued it for you. Fixed a guide price before you marketed it?
You didn't put up a sign which said best offer accepted by the end of the month.
You did not need to use a futures market, take out an option,or anything you are advising us to do when we sell our commodities because you fixed a guide price and STUCK close to it. You needed help from a realator to set the price and help make the sale
Why don,t marketing advisors value commodities like realtors value houses?
Give both buyer and seller a guide price help make the sale at a fair price.
Would this be a better way to market comodities??
You seem very keen for us to give a fair price
Mine would be 10yr average 10% feed wheat 140 60/2=£100 feed barley 131 57/2£94 canola 212 110/2= £161.

At these prices I will survive because I will be able to forward plan, I will compete on farming ability and customer service and realize I might not sell all I can produce

Have you an opinion on a fair price, a figure?

Tom

What you do is make the very best of todays system. Charlie and Lee give sound advice too.
Is todays system giving what people want I want a more stable price so does cowman, so do you I think
You see the CWB as a hinderance to your marketing abilities, and I totally agree it is.
I see our straw deals as a more efficient way of marketing. I want to do more deals like this but am frustrated not by lack of people to do deals with but a 150yr old system that is clearly not working as it was intended.
I think you to will become frustrated like me if you win, when you win your export licences.
Like me you will be looking for zero-till marketing!!! There must be a better way.
It is amazing the similarities in our operations continents apart!!!

cowman

Thanks for your answers. Our customer would like a fixed price, we should make sure he gets it. He could then pass this on to his customers and perhaps we could all get off the rolla-coaster!!!

Regards Ian

[TOM4CWB]

Ian,

If your average Canola and Wheat price was high enough to cause stock levels to increase, and then we had a years carry over extra, then who would be forced to hold the grain?

In specialized domestic markets like our straw, we can keep our farm busy during off periods, and therefore can better afford to keep them year round.

But this is still work, but specialized work that many farmers don't have the equipment to do. Domestic specialties like this are worth much to our farms!

But when our bins are full of Canola and Wheat, and we can't sell it at all because of the huge glut "fair" prices that we asked for created, then what will we do?

The commodity system we have may not be perfect, I would suggest it is just like democracy,(both really are just freedom of choice) not perfect either, but I just don't see anything better that would over come these issues!!!!

[melvill]

Ianben, I'm like Tom4cwb, I can't see an alternative to the current open market (or relatively open market - US and EEC tinkering aside) system.

However, there is one alternative that sort-of works here in Canada but it has gotten, and continues to get us, in trouble with out trading partners. That alternative is the diary industry in Canada. In that industry, (and this is a rough explanation for the sake of brevity) detailed surveys of dairies are done to determine the cost of producing drinking, not manufacturing, milk. Then producers of drinking milk are paid roughly the average cost of production. That means that some producers, whose costs of production on a per hectaliter basis, is lower than average are profitable. Other dairies, whose costs are above the average are losing money.

The other part of the equation that makes this system work is production limitations or quotas. Production quotas are required because whenever there is a guaranteed price for anything, producers of that commodity will try to producer more and more until they exceed their marginal cost of production. That would probably result in huge surpluses.

In Canada each dairyman receives a volume limit. If he exceeds that limit, the price he receives for the excess is significantly low enough to discourage production over and above the quota. All-in-all, some dairies are profitable and some, even with a guaranteed price, are not.

Maybe that's the answer for all farmers. Each product has a production limit and the price of each commodity is based on the average cost to produce it. The problem is, how does one establish a world-wide or country-wide production limit for each commodity and how does one establish a world-wide or country-wide average cost of production. That alternative suggests a massive administrative system that would be impossible to convince most countries to sign on. Look at OPEC. That group is relatively small but look how much trouble they have convincing their membership to increase or decrease oil production as a group.

In my opinion, we're still stuck with the rise and fall of prices as the marketplace tries to establish an equilibrium price that balances consumption against available supply. And remember "consumption" and "available supply" are perceptions based on belief because neither is known in absolutes until after, sometimes long after, the fact.

Lee

[ianben]

Tom and Lee
Thanks for your perseverance. Most guys get cross with me before now.

I admit I have no solution just a lot of ideas which come from looking at how other people market different products.
They seem to manage to balance supply and demand without the huge price swings we have.

The rat-bait man, houses,ice-cream,umbrella sales. Small individual deals simillar to farmers but somehow managed better. We are not that different, I believe, just hooked up to a futures market where price is supposed to regulate production.

If low prices did reduce production I could perhaps live with this sysyem.

However we have seen low prices were increasing production in Brazil. Producing more is my only option in the UK, and where have all the summer fallow acres gone in Canada!!

Do you really believe the system works??
Is n't it just the weather??
Who says we could not learn to regulate supply. WE HAVE NEVER TRIED.
It is easy to say it will never work but some mad man has to try before we know.
How are those farmcorp guys doing?

We desicated winter canola yesterday so the combine should be rolling in 10-14 days. Lots to do before then!! What happened!! Had lots of things planned to be done while crops grew. Now I must rush to be ready for another harvest!!

Regards Ian

[charliep]

Ianben

You posed the question back to me as to what a fair and I have to admit to not having the answer other than letting the market place sort that out. As long as information is readily available to all participants and price is formulated in an open setting, I think we have an effective system (not perfect).

A concept I would argue is that we have an income problem - not a price problem this year. Poor yields and higher costs will have more impact on net income this year than our prices. I would rather talk to a person who grew a 40 bu/acre crop about $5/bu prices than one that grew a 15 bu/acre crop and sold for $8/bu.

I will leave here for further discussion.

I enjoy your comments on crop progress and insight into European Ag. policy. What impact will the move to bio fuels have on European vegoil demand and prices.