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Knife to a gun fight

Farm talk: Grain marketing has changed. Farmers need to be ready to deal with the new reality

Have you ever heard the expression “Never take a knife to a gun fight?” It’s good advice. Unless you are armed with as good a weapon as your foe you are most likely to face defeat, or at least a good thrashing.

That lesson was not lost on western Canadian farmers through the years they endured the one sided monopoly of the Canadian Wheat Board. If any one came to the fight better armed, it was the old CWB. In fact, they had all the weapons, rocks, spears, arrows, knives, swords and guns.

That changed on August 1, 2012, and hopefully the old CWB has been replaced by a new and enlightened CWB ready to compete for western Canadian grain.

Western Canadian farmers’ world changed that day in August of 2012. As midwestern U.S. farmers looked out over their drought pillaged crops, Canadian farmers revelled in their new-found freedom to sell their grain to whomever they pleased whenever they pleased at record high prices. Marketing was easy. We had the production and the world wanted it. Seemingly, at any price.

Then comes 2013 and we grew a crop and a half. No one I have spoken to since harvest has suggested that they grew anything less than the “best crop I ever grew.” Then the question, “Now, how do I sell it?”

In the past, grain companies were ravenous to direct grain into their facilities knowing that the old CWB would pay them well for the pleasure of handling the monopoly’s grain. Rates were fixed at the beginning of every crop year, assuring profitability. At least as long as your grading competitiveness did not get out of hand.

A fleet of white trucks left the elevators every morning in search of producer’s grain. Bright young grain co-ordinators, farm service representatives or some such other terms used to dignify the job of asking farmers for their business.

I bet you’ve noticed things have changed. You now sit across from your buyer, eyeball to eyeball, trying to do the best you can from the crop and a half you grew. You just brought a knife to a gun fight.

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Your buyer has been trained in the futures markets, he knows not just that there is something called a basis but can tell you with some authority what constituents make up the total basis he is quoting. He knows that the western Canadian grain-handling system is plugged from back to front and that his capacity to handle grain has been reached at the current time and well into the future. You hear something you thought you would never hear as a farmer: “I can’t buy your grain.” That may be partially true, what he meant was, “I can’t buy your grain at the old basis levels where I was just getting by, but if you accept the much wider basis I could try and see what we can do”

You squirm a bit in your chair and realize he just took a shot and your knife has shrunk to a pen knife from its former Crocodile Dundee stature.

Get a gun

“So, where do I get a gun?” you say. “If you are so smart, what would you have done?” you add.

On that fateful August day in 2012 I would have realized that my position had changed. I was now in charge of my own marketing. Not just to get a higher price but to compete with my brethren as I had never learned to compete. Now I had to move from a farmer to a purveyor of the finest quality of farm production delivered in good condition in a timely fashion to a customer who is inundated with producers whose production was identical to mine, so I had to be different. I would learn the way that business was done in the real grain world and adapt to that world.

I would take the time to determine the real unit cost of production and what levels I need to sell at to meet my profit goals. I would try to begin to understand that the bushel or tonne was really the only true way to calculate costs and profitability.

I would learn that every penny I spent would come from the bushel or tonne and if I were to remain sustainable I need to include the young fella’s new sled or the cost of my daughter’s university education somewhere in the equation as well as the money drawn for living and personal expenses. I would try to evaluate what crop my customers would be asking for in the future and not grow what I’ve always grown because it is easy or I was good at it.

I would learn to manage risk, not be threatened by it. I would start to think of myself as the CEO of a multimillion dollar agricultural production business and shrug off and refuse to hide behind the “farmer” label.

I would be determined, in my next meeting with my grain buyer, to bring a gun to the gunfight. Or, I might hire a gun. My gunfighter would be someone willing to work with me in establishing the goals and profitability models needed to thrive in the brave new world. My gunfighter would be a market coach who would prepare a plan based on capturing profits when they presented themselves and selling in increments to cover my cash flow needs.

I would not look at my market coach’s fees as an added expense that is better saved. I would look at it as a cost of doing business and a way to improve my bottom line, the same as good seed or fertilizer or pesticides, and I would include his fees in my per bushel (or tonne) production cost calculations.

Unless there is a crop failure somewhere in Western Canada’s future, or new handling capacity is built or the railroads and terminals move grain from the country and get it on a boat on time, this will be the new normal. Even another crop failure in the U.S. is not going to alleviate the Canadian problem. We will watch with horror as strengthening grain prices due to lowered world stocks are eroded away by basis levels that are a result of the chronically constipated system.

Arm yourselves for the inevitable. It won’t be pretty.

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