This one is for Chas:
You say "Fixed pricing and future markets are our biggest problem in gaining sustainability. They actually keep our prices low and cause surpluses in higher priced commodities."
Question #1:
What do you mean by fixed pricing?
If you mean what I think you mean, I am not sure why you would say that it is a problem in gaining sustainability.
As for futures markets, they lower price risk. Since risk is a cost, futures markets lower cost (not price). Without futures markets, the industry (open market and single desk alike) would require a higher risk premium - buyers pay more, producers get less. (Yes, the CWB uses futures. (and options!))
The futures markets don't push prices lower, they simply reflect the price based on the balance of supply to demand - economics 101.
Here's some food for thought regarding sustainability:
1. Do you really want to support prices in the way you described - "so we get what our commodity should be worth considering inflation"?
Remember the adage "the cure for high prices is high prices; the cure for low prices is low prices". It seems to me that to get total cooperation among farmers to support prices is impossible. Human nature says so. If wheat is worth $8.00/bushel in Canada, then it's worth $8.00/bushel elsewhere too. The only way around that is through government involvement. Higher prices will only mean higher production (somewhere).
And what about feeding the world? Acting to raise prices only means more people can't afford to buy.
2. What about looking at farm structure? For years, farms needed to get bigger and bigger to remain sustainable. Don't know if that makes sense anymore - how big is too big? And with prices where they are now, "quantity" of production may not be the best answer anyway - perhaps the answer is "quality".
I see a future where farmers own and operate farms in different parts of the country, or even the world. Get ten or more guys together to form a farm corporation, their initial investment is their farm. As a group, they form a board of directors and divide management duties - someone responsible for finance (he's the CFO), one responsible for purchasing (VP of purchasing), another responsible for marketing (VP of marketing), etc. As a group, they negotiate on all inputs, and on sales. They enter into alliances with companies they want to "partner" with.
I'm not talking about just grain farmers either. In the group there could be a specialty bean farm, a cranberry farm that also produces and markets juice, a pmu unit, and so on. And the group would also consider investments in valued added - related or not.
3. Should farmers raise equity instead of taking on debt to raise capital?
4. When I mentioned quality above, I wasn't referring to the quality of the wheat you're growing. I was talking about what it is that you are marketing. Being involved in the conversion of your commodity into a more valuable product is where true sustainability comes from, through more stable returns. Look at Maple Leaf Foods a couple of years ago when the guys in hogs were operating in the red - Maple Leaf had their best year ever. Record profits. What's wrong with this picture!?
There's a guy in North Dakota who grew and marketed flax. Now he markets an "energy bar" made with his flax and other ingredients. He has about 20 people working for him - he manufactures, packages, and markets around the world. Oh yeah, he still produces the flax. But now he doesn't care what the price of flax is anymore because he doesn't sell it anymore.
This is mong enough - I'll stop now.
cm
You say "Fixed pricing and future markets are our biggest problem in gaining sustainability. They actually keep our prices low and cause surpluses in higher priced commodities."
Question #1:
What do you mean by fixed pricing?
If you mean what I think you mean, I am not sure why you would say that it is a problem in gaining sustainability.
As for futures markets, they lower price risk. Since risk is a cost, futures markets lower cost (not price). Without futures markets, the industry (open market and single desk alike) would require a higher risk premium - buyers pay more, producers get less. (Yes, the CWB uses futures. (and options!))
The futures markets don't push prices lower, they simply reflect the price based on the balance of supply to demand - economics 101.
Here's some food for thought regarding sustainability:
1. Do you really want to support prices in the way you described - "so we get what our commodity should be worth considering inflation"?
Remember the adage "the cure for high prices is high prices; the cure for low prices is low prices". It seems to me that to get total cooperation among farmers to support prices is impossible. Human nature says so. If wheat is worth $8.00/bushel in Canada, then it's worth $8.00/bushel elsewhere too. The only way around that is through government involvement. Higher prices will only mean higher production (somewhere).
And what about feeding the world? Acting to raise prices only means more people can't afford to buy.
2. What about looking at farm structure? For years, farms needed to get bigger and bigger to remain sustainable. Don't know if that makes sense anymore - how big is too big? And with prices where they are now, "quantity" of production may not be the best answer anyway - perhaps the answer is "quality".
I see a future where farmers own and operate farms in different parts of the country, or even the world. Get ten or more guys together to form a farm corporation, their initial investment is their farm. As a group, they form a board of directors and divide management duties - someone responsible for finance (he's the CFO), one responsible for purchasing (VP of purchasing), another responsible for marketing (VP of marketing), etc. As a group, they negotiate on all inputs, and on sales. They enter into alliances with companies they want to "partner" with.
I'm not talking about just grain farmers either. In the group there could be a specialty bean farm, a cranberry farm that also produces and markets juice, a pmu unit, and so on. And the group would also consider investments in valued added - related or not.
3. Should farmers raise equity instead of taking on debt to raise capital?
4. When I mentioned quality above, I wasn't referring to the quality of the wheat you're growing. I was talking about what it is that you are marketing. Being involved in the conversion of your commodity into a more valuable product is where true sustainability comes from, through more stable returns. Look at Maple Leaf Foods a couple of years ago when the guys in hogs were operating in the red - Maple Leaf had their best year ever. Record profits. What's wrong with this picture!?
There's a guy in North Dakota who grew and marketed flax. Now he markets an "energy bar" made with his flax and other ingredients. He has about 20 people working for him - he manufactures, packages, and markets around the world. Oh yeah, he still produces the flax. But now he doesn't care what the price of flax is anymore because he doesn't sell it anymore.
This is mong enough - I'll stop now.
cm
Comment