pennicilan and semen

[melvill]

Chas & tom4cwb, interesting debate. Chas, like it or not we've always had speculators in the food chain. Look back (away back) to the time before the CBOT when grain dealers in Chicago bought grain in the countryside with the idea that they would move it to the mills in Chicago and make more profit than a small return on investment over and above their costs of transporting it to Chicago. In that environment farmers and local warehousemen were at the mercies of these Chicago grain dealers who thoroughly understood the wheat market but didn't share that info with producers and warehousemen. They were the speculators in their time and they were very few in number.

More recently we have different (or other) speculators in the marketplace. We have farmers who hold their product waiting for the price to go higher. We have farm product buyers who buy product in advance of sales hoping to earn more than a margin over and above their costs of getting product to buyers (which every once in a while culls out a significant number of companies because the market goes down after they've bought product). We have international merchants of let's say, chickpeas, who buy Canadian product and hope the price in their destination country hasn't gone down before they get the chickpeas into the consuming market. We have countries like China exporting corn at opportune times hoping to buy it back later at a lower price. Right now we have feedlots buying feeder cattle at prices well above breakeven specing that slaughter cattle prices will have risen by the time these cattle are ready for slaughter.

For some time now, we have had very large speculators (funds) specing in futures. There's no doubt they create increased volatility in the futures market. That volatility drives prices higher at times and lower at other times than they should be (in the short run) based on straight supply-demand numbers. However, it's very important to remember that volatility creates opportunities for those willing to take advantage of them. Tom4cwb is right about canola, for example. Funds specing on a rise in canola have bought new-crop canola futures and their very strong buying has driven the prices an extimated $20 to $30 a tonne above where supply-demand numbers dictate they "should" be. Of course, crushers have been in there buying, too, as a hedge for incoming supplies in case there really is a very short crop in Canada. Again, though, right now is a tremendous selling or hedging opportunity for growers of new-crop canola, mostly created by funds going long (buying) November canola futures and driving the price up.

Marketing on the farm is all about taking advantage of opportunities. My experience is that is what separates successful marketers from those who either don't know about the opportunities or are too cautious to take advantage of them.

Lee

[ianben]

Hi All
I think the way to solve this problem is to find a way to stabilize prices.

Lee as you rightly say there have been futures markets for a long time and they exist to protect our customers from our inabillity to market our produce with any guarantee on price, quality or quantity.
In the 21st century there must be a better way. Look at the speed we can communicate and at such little cost.

Tom you are right to try and produce what the market wants but true master marketers also provide a garanteed supply at a fixed price.
This is the way modern marketing is done!
The price is X How much do you want?
Obviously X will be different depending on where you live but isn't this how the market works today based on Chicago
Minniapolis etc.
We would still compete, but why do we all need to loose money for a couple of years and do untold harm to our communities, just because someone decides the market is over supplied.

I do not believe you are making a REAL profit including interest on capital and deprecation at todays prices. No matter how good you are with futures options etc. you cannot get away from a low price.
CWB or no CWB that is still true.

If we could stabilize the price there would no longer be speculation as there never is in commodities which don't have wild price swings.
We would have to learn how to manage our stocks and ajust our production but that sounds more like farming than gambling to me.

What do you think Chas??

Regards Ian

[TOM4CWB]

Ian,

You are right to say in the end supply and production restrictions are required to stabilize wheat values!

My question is, morally can this be justified?

How many starving people in this world are ok?

If the starving people had the power to blow us up with an A-bomb, then what would we do?

Who says, and by what justification, that I am poor, when by the standards of northern Africa, or India, China or Russia, I am in the top 1% of the richest people in their countries!!!

We are talking over 50% of the worlds population in the countries just mentioned, is anyone involved in this discussion willing to go and farm in any one of these regions?

No Way, and you and I both know it!

We have things really good, are families are well fed, can get a good education if we want, and good health care compared to 95% of the rest of the world!

Now, do we have the right to say production should decrease so more poor people will starve, so we can fill our bank accounts?

Just because other segments of "civilization" like big muli- nationals do it, does this make what they are doing right?

Do we want to be accused of the same evils, and be part of destroying the world, instead of making it a better place?

[ianben]

Hi Tom
I think stable prices would help the third world.
Most of thier ecconomies are based on agriculture so realistic prices would be better for them too.
Ultra low prices are not passed they get gobbled up along the way.
Look in your supermarkets!
OUR CUSTOMERS LIKE STABLE PRICES is the excuse they use over here for not lowering prices.
Lets give them what they want I thought that was part of your master marketing plan.
I don't want to hold the world to ramsom just even out the peaks and troughs. It is not a new idea it is in the bible! you know the story of Joseph in Egypt and the 7 fat and 7 lean years.
That would be the way I hope it would work.
Where is the morality in futures trading anyway. Do you think speculation is done for the good of mankind??or to protect the multi-nationals butt!!

Chas's view is nearer the truth, gambling without going to Vegas!!!

Regards Ian

[TOM4CWB]

Ian,

I disagree that hedging my grain is gambling!

Economics dictate that at $5, $6, and $7 a bu different people will be able to survive and make a living growing Canola!

This year, people had the chance to sell canola over this range of prices!

If my farm couldn't make a profit at $5, it could likely at $7.

The market got supplied, we were competitve world wide, and noone held a gun to my head and said I had to sell my Canola at $5!!!!

The speculators needed Canola and were short of this product, but it is amazing how much could be found when the price hit $7!!!

That 15,000 short spec position got filled in a hurry.

Now about Egypt and Joseph the inspired one.

I wouldn't trust anyone today to know what the weather, or the production ability over the next 7 years should be to make sure everyone has a full tummy!!

If a benovolent dictator who is as wise as Joseph was shows up, let me know, I would like an appointment with him right away!!!!!!

How this wise person could ever get into the position of power Joseph had; today this would be less possible than having this special knowledge to begin with!!!!!!!!!!

Boy we are really hitting the fantasyland topic square between the eyes tonite, but hey, its fun, and it is really interesting!!!!!!!!!!!!

[ianben]

Hi Tom
I agree you are not gambling, I was refering to speculators who just trade paper and questioning the morality of that.
Now I am not waiting for Joseph either, but I know there will be fat and lean years, can't beat nature no matter what!

How are your crops looking ? Still looks like a very lean year here, not quite enough water now but darn't pray for rain in case it never stops again.

Lets try something with those canola prices I think I could live in that range too.

Between $6&$7 we would sell as before.

If the price dropped below $6 we would put some in the lean year bin if we had had a fat year and hope that stoped the fall.

If the price got down to $5 we would NOT sell. I still fail to see how silly low prices help anyone only middle men they never reach the end user.

When the price was over $7 we could sell from the lean year bin and hope this kept the price down. I don,t like high prices either they just alienate customers, not a good marketing stratagy.

No dictators, no laws, no hard and fast rules, grow what you like.
Just use your common-sence and hold the minimmum price.

Why not ? Would that be immoral?
It need not be a fantacy now we can comunicate like this.

Regards Ian

[TOM4CWB]

Ian,

Sounds good what you are saying!

I do hope we can have Canola back over $7/bu on a more long term basis, although if Brazil keeps expanding bean acres, I hear they have the potential for 100 million more acres, we may not see it happen!

It would be good for the earth if they would stop burning the jungle and save the rainforest, should industrialized countries be partly responsible to pay so they don't wreck the environment and upset the grain production industry around the world?

[ianben]

Hi Tom
That Is what I've been trying to say for the last six months, perhaps I explained it better this time.
I would like prices higher too perhaps $6to $8 would be more acceptable. The important point is to draw a bottom line somewhere and all stick to it!!
We must avoid those crazy lows.

I have difficulty finding an acceptable solution to Brazil etc.
I truely believe higher prices will help their peoples standard of living, but may not save the rain forest. Paying people not to do something is not good for their dignity or self-respect.
How can we refuse them what we demand ourselves?

We could do with a Joseph for this one!!!

Regards Ian

[chas]

Ianben: I believe you and I are on the right track but we can't seem to convince Tom4cwb and Melvil that the mental and physical high that you get from speculating need not be in our industry. We speculate enought by keeping inventory that is unpriced. But then they say price it. But pricing into the future works against us by keeping the same low price into the future. The only way to move price is to with hold product from the market like car makers do. But that is all speculating I quess, confusing isn't it.
Just to try and clairify my statement of large speculators. I'am talking about the large corporations such as Cargil, Louis Drefus, Tyson foods, ADM and McCains foods. It is in their best interest to keep prices of grains and oilseeds at the lowest price they dare manipulate to and still maintain a supply. They accomplish this manipulation by lobbying and buying political votes with governments. The market distortions are created by subsidises to certain commodoties which creates over production and maintains the low prices for companies who are intergrated into the food supply industry to great depth. There is also a great suspicion that these companies have a great influence on out coming USDA crop reports. The right report gets the right price. Lets not kid ourselves food is a big and lucative industry and moneymakers have no morals.
Tom the price of our product has nothing to do with the hungry and the poor of the world. If we gave it to them they would still be hungry and poor. Don't put a world political problem on the backs of farmers.
Governments must be removed from the pricing mechanizm and speculation must be removed by, if you sell you deliver, if you buy you take delivery. Amen. Pass the wine Chas.

[TOM4CWB]

Chas,

To refuse to accept that supply and demand of a grain product over the long term equals the value of this product is not facing reality!

If Brazil can grow soybeans profitably at $3.50/bu, by breaking up the rainforest, means our Canola is worth less than $5.50!

Now the "market" knows this, and unless a value added side can be added to the sale of a grain product, no one will pay more!

I am not saying that we are directly responsible for the hungry or starving people in the world today, as we do not have a cartel on grain like OPEC.

However, once we do set up a cartel, then we cross the line and take this responsibility upon ourselves!

I do not have the knowlege of what the weather will be in the next 5 years, therefore I cannot tell people how much to grow, because I cannot know what the supply will be over this time period.

Further, restricting supply and withholding a product to make this product "high priced" from a historical point of view is only cutting our own throats!!!

Mark my words, OPEC will pay big time for what they have done in the last year, because oil prices will come down!!!

It is just so profitable to find and produce the stuff that eventually the demand will fall and the supply will increase making a glut of oil at some time in the future a certain fact!!!!!

Now, when we do this with our grain, and anyone on the planet can produce grain, what makes you think if the supply is limited by us, causing the price to rise, that others will not produce making a glut and getting established?

Once they are established, they innovate, and learn to grow it for less than we can, and you guessed it?

We can't grow it profitably and are out of the business anyway!!!!!!

So now that we can't efficiently grow grain anymore Chas, because we got these other folks growing the stuff by our own greed, just so they could feed their own hungry people, why would we consider this as a solution???