Fantasyland 2

[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.

[TOM4CWB]

Ian,

I will bet if soybean prices get to $6./bu US that the Brazilian farmers will expand production much faster than if they were only at $4./bu.

This in turn will bring the price back down to $3.50!!!

This tread mill never ends, I guess a person needs to enjoy being a farmer and dealing with this stress, or find a different job with different kinds of stress!!!

We still have it pretty good, right Ian?

Are you able to take advantage of this big price rally on your winter Canola?

I am chicken to go pricing above 40% of expected Canola production, untill we get some more rain!!!!

[ianben]

Hi Charlie
That is the answer I expected you to give a bit like your last one about the realtor.
That one sure got me thinking though!
Are houses that different from commodities?
How are prices maintained at resonable levels?
Why is the market not flooded with new houses crashing prices?
Is it because a realtor can fix a fair price?
No personal slur intended our marketing advisors would give the same answers as you?
I just wonder if this could be the start
of a way to stablize prices.
I fully understand the problem of 40bu/$5 verses 15bu/$8. 2yrs income equals$320.Selling 30bu in yr1 at $6.50 and 25bu in yr2 at $7 gives $370 and a much happier customer
It just seems so logical to me there must be away to make it happen with todays technology.
Bio-fuels canola is mostly grown on setaside land. Land we must not plant with food crops in oder to gain our subsidies, currently 10% cropped area but has been 15%.All canola grown on land must go for industrial use and there is a minimum which must be sent regardless of actual yield. We have 40 acres ind canola this year. Price is always about £20 less than market price due to extra work involved in administration they say. Can be fixed price on contract, pool, or £20 below market on delivery. We opted for pool this year.
Canola prices have started to rise here today but seem somewhat behind yours as yet quoting £146/tonne ex-farm.
Currency and bushels make comparison more difficult!!
Like you Tom I never like to sell too much canola till it is in the bin. A big wind in 7days and it could all be on the floor!! That setaside contract would still have to be filled!!!
Barley here is actually falling £65 ex-combine. I guess that yours is just a local weather market as cattlemen cover themselves. I would be taking some of that in your position.

Yes Tom I do love to farm and life has been good to me, but that does not mean I things cannot be improved. Like you I feel we have a duty to strive to make things happen

Regards Ian

[charliep]

Ianben

My house prices came from doing research on the market for sales of similar houses over the past year. When I sold the house, whether I made or lost money depended on the market at the time I sold/how well I bought originally. As a point of interest, the people who make money on real estate like houses are people who add value by fixing up/market to customer.

Your points about stable prices are well taken. Its just I struggle to come up with real life examples - particularly with agriculture. OPEC has worked in the oil world to some extent but this has come after years of struggling - USD $12/barrel wasn't that long ago. My thoughts are that the demand side - particularly here in N. America - has as much to do with current USD $25 plus/barrel oil as OPEC members discipline.

Your view has been that all farmers should take these actions on their own to restrict supplies to support prices. The question for discussion is how this would happen.

My world is forecasting in a world of imperfection (drought, government policy, market emotions that change on a daily basis). The other discussions I get involved in are how to assist farm families who are good business managers survive through difficult times. Is price support the route or are there other ways?

Let the discussion continue.

[ianben]

Hi Charlie
Market reseach a very useful marketing tool but one farmers again seem to struggle with.

How are we supposed to relate the "surplus" or "shortage" to our individual enterprise.

Take the present rally in oilseeds. The soya bean surplus appeared so big to me that a perception of poor weather would have little affect on prices.
Obviously I was wrong.

Is Tom right. Can Brazil make a real profit at $3.50/bu or are they expaning production because prices are low?

I was convinced Canada could produce canola at $5/bu till I did a bit of reaseach. I know different now but is this of any use to me as an individual.

Does it help to know we are all loosing money?

Could someone like yourself do market research on farmers behalf then explain it in terms that we could relate to.

Explain that soya bean supplus in bu/acre I presume expressed in these terms it must be quite small.

Publish on the web were we all have access,this was the missing link, with suggested prices. Act like the realtor in house sales, Give us confidence to hold for better prices. Give buyers the perception that we know the fair price and they cannot play us one against the other.
I believe common-sence would make it work.
The facts explained in terms we all can relate to.
Why would we all sell below cost?

Market research is vital!!!!

Marketing is more than selling!!!and taking out insurance!!!

Yes, you are right no ag product has stable prices. This service would be needed across the board.

I still do not believe ag products are a special case and more importantly I believe governments are coming to the same conclusion.

Are the days of subsidies and emergancy hand-outs numbered?

Looks that way to me!

Regards Ian

[ianben]

Hi Tom
I missed one of your questions
What do we do when we have a years production in our bins?
Well that depends on you, no rules or laws, Have you just had the seven fat years an must expect the seven thin?
Have you beaten nature?Then perhaps you can take a year off.
Personally I will try to keep my bins full at a lower cost. Use les s fert perhaps.
I thuoght you would like this freedom to choose.

Do you think that would really happen?

Surpluses are small in percentage terms,and nature can be cruel.

Regards Ian

[TOM4CWB]

Ian,

I remember a story about a farmer who had filled his bins, and then tore down his grain bins and built bigger ones to store all that he had.

As he had a large supply of grain on hand, and owed no one anything, he decided to just take it easy and live off the "fat of the land", and take it easy!!!

Do you remember what happened the this grain farmer Ian?

Now I am not saying this will happen to you Ian, but I think there is a principal here!

We are to share the blessings of the bountyful land that we have been given the priviledge to be husbandlike and carefully caretake!

By withholding the fruit of the earth from those who would need to eat, I believe is against the moral basis and faith that I truly believe in.

I believe this human love for our neighbour makes humanity human and I was placed on this little green planet third from the sun, to make a point of helping our planet to be a better place to live on!

[ianben]

Hi Tom
Sorry to hear about the hail,hope you have crop insurance!
Now you are getting me wrong again.I'm sorry.
The point I was trying to make was .
Do you think we would ever get anything like one years production on stock?
Hail or what ever will always curb our production over time, it is what rules your market today.

I just want a way to control the volatility.

The total market is vast.
I think the surpluses which cause prices to colapes may appear large to us as individuals but expressed in bu/acre are small a lot less than you just lost in a hailstorm.

I just want us to carry what would be gods bounty in a good year the replace your crop lost to hail, and not give it to a guy who can make 60 million in a year from our poor friends in Brazil.

One guy making 60 million that is WRONG!!

Now I have looked at farms for sale in Canada.
Some farms seem to have been for sale for quite a while.
Nothing wrong with that, I say, the guy is just waiting for the right price.
Probablly given him by a realtor or after a little market research of his own.
He has fixed a price though!!!

Why is selling a farm different from selling commodities?

Tom did your marketing course cover market research, have you looked at surpluses on a bu/ac basis?

The combines have started to roll here.
A neighbour cut some barley yesterday and baled the straw today, even though we had some rain in the night.
Reports of canola beening harvested a bit further south. Price went up again Fri £154 ex combine
I wish it was in the bin!!!

Regards Ian

[TOM4CWB]

Ian,

Hope that the harvest goes well!!

Since this system lets people speculate, and take on risk, now the positive side of this is to hedge risk to the speculator when they are willing to take this risk willingly!

Sometimes they will make money, sometimes loose big time.

If we are willing to give risk to these people, the average price we recieve can be much more stable and profitable!

I don't mind selling at a "low" cash price in the fall, if there is a good basis, and my futures position makes up the difference.

Now my customer can continue buying at a competitive price, and the speculator helped make my farm profitable!

I can't say that I know what exactly is the best way to market, only that a willing buyer and seller must agree on a price that both agree on and think is fair for the time and place that the sale is completed!

I went to some feed mills, and they told me that the feed prices that were being quoted on the futures were too high, and they wouldn't pay, to contract at these high prices.

Thet haven't had to pay fair prices and compete for a long time, and it will take much marketing pain to get them to change!

If a farm has not sold for a long time, there is probably a good reason!

A good prosperous community makes land sell well, and opportunites for the young people who will farm after we are off the scene!

This is a good chunk of the reason land is $1000./ac in one area, and for the same productivity capacity, $500./ac in another!

I need my family to live in a positive environment, or it isn't worth farming!

[ianben]

Hi Tom
Thanks for the good wishes
Good to hear you got some rain at last, hope it's not too late.
Raining hard and blowing a gale here tonight. The canola has been slow to desicate so hope we will not get too much shatter.
Forcast not good for next few days so it might be more of a problem then.

I know all you say about risk management etc is right and perhaps if more farmers used it prices might stablize.
However perhaps, because we all haven't had your training, it does not seem to be working down on the farm anywhere in the world.
I would be interested to know your highs and lows, for canola for example, after useing all your marketing skills.
Have you managed to control that volatility??

I still think low prices do not help poor hungry people in the less developed countries of the world.
Read that article on Brazil again. Their economy was wrecked, currency devalued 40%. Only way to earn dollars to pay for essential imports, sell more agricultural commodities.

My cousin's husband deals in Ukraine selling high grade steel for gas turbine manufacture.
Their money is practically worthless, so they use sunflower seed instead. Obviously if prices are low more tonnes are required to pay for the steel. This sunflower seed is then just unloaded on the market so the steel company get their cash.
I don't know if Ukraine would export sunflowers if they were not buying steel, but I hear people are returning to the contaminated area around Chernobl to grow food to suvive.

Surely you could not support a system which drives people to eat radioactive food.

Charlie would you like to give your opinion on this question and help us on this point?

Regards Ian

[charliep]

I haven't heard about Ukrainine grain being grown from around Chernobyl but it is likely given their needs. The only comments on Eastern Europe and Former Soviet is that grain production is up and they are likely to export more to generate foreign currency. Issues around grain from this region are quality and infrastructure problems/ability to meet shipping deadlines. Willingness to discount (particularly if prices continue to rally) and strategic relationships (taking grain to get paid) are also pluses to higher movement from this region.

A comment from work we have looked at for Brazil is the lower cost of land and the ability to stretch equipment use over a longer period than here in N. America. Cash costs are very similar (with a caveat of the rate of inflation having a major impact on carrying inputs unpriced). A major impact of US subsidy programs has been these subidies have got built into real estate costs (land purchase prices and rentals).

I will leave discussion flow from here.