BETTER PRICE TRANSPARENCY WORTHY GOAL
Wednesday, 28 October 2015 16:42
For generations, western Canadian farmers marketed their grain by hauling it to the local elevator as it was called in. The Canadian Wheat Board largely controlled when this happened and at what price.
However, it’s a different story today.Unlike financial markets, the energy industry and other established sectors of the Canadian economy, the grain trade in Western Canada must still deal with massive information gaps, which often prevent buyers and sellers from conducting business efficiently.
Many new supply chains have emerged since the CWB monopoly disappeared, not just for wheat but for all of the grains, oilseeds, pulses and other crops produced on the Prairies.
Many small and large multinational players are developing infrastructure, buying plants and opening trading offices in Canada.
This is creating solid new competition for farmers’ crops. As a result, the grain sector now offers novel opportunities to build wealth in new ways for individual farms.
Capitalizing on the opportunity to access new buyers and better prices for a farm’s crops can be complicated and time-consuming. Basic commodity pricing systems, including those that define grain marketing in university textbooks, mostly don’t exist or don’t function properly in Canada.
Futures markets, clearinghouses and public grain warehousing in Europe, the United States and Australia are some of the tools that level the pricing platform for commodity crops.
However, individual farmers in Western Canada are left largely to their own devices to discover and crystallize the true, top value for their crops.
The crop mix in Western Canada is diverse compared to other grain-producing regions.
There isn’t one consistent market structure that captures the price discovery needs of farmers as the futures market does for corn, wheat and soybean farmers in Eastern Canada and the U.S.
Production contracts with act of God clauses are a unique feature of the prairie farmer’s marketing toolbox, as are inconsistencies in the basis calculations that are used to price Canadian wheat.
Partnership options are available to producers to connect consumers and end users. Some of them use proprietary technologies, strong information networks and trusting relationships to bridge the gap.
As well, many farmers use consultants, analysts, brokers and grain companies to help leverage all the available tools of market analysis and price discovery to maximize their revenues.
The time and effort involved in price discovery for prairie crops represents an opportunity that always ends up translating into better returns for farmers.
Marketing advisers and grain brokers work hard every day to discover the best markets, creating perfect price transparency along the way.
Making this happen creates new wealth on farms, jobs and economic growth for rural communities.
Brenda Tjaden Lepp is an analyst at Farm Link Marketing Solutions.