Basis main attraction | Company sells farm input side of Viterra assets
Some marketing advisers say Glencore grain elevators will likely want to buy the kinds of wheat that makes farmers the most money and will try to buy it in the way farmers find easiest.
They say separating the elevator system from a more full service grain company organization will give Glencore a chance to focus on buying and selling just grain.
“They won’t be all about the bundling programs,” said Brenda Tjaden Lepp of FarmLink Marketing Solutions, referring to complex arrangements many prairie grain companies have with farmers involving many goods and services.
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“(Prairie companies) have built their relationships around this culture of tying together the financing and the inputs and the basis. For a new player, it would be refreshing to just use the basis, the way it works in most other places.”
Derek Squair of Agri-Trend Marketing said Glencore will want to move lots of grain as efficiently as possible, so it will want to encourage farmers to grow the types of wheat it can sell at the highest margin. The only way to do that is to offer basis levels that provide the highest net returns per acre.
“They want to keep the high volume, high quality wheat markets,” said Squair.
Many analysts suggest that the post-CWB era will see more high volume, lower quality wheat grown on the Prairies, and Squair said he thinks Glencore will find some way to signal whether that sort of grain will move fast and sell for a good net return.
“I think they’ll want both high quality and high volume, to keep the best-paying, highest quality customers from places like Japan, but also be able to move bulk to buyers who don’t need the top quality,” said Squair.
He agreed with Glencore’s arguments that its global presence and market intelligence will allow it to move grain into the best paying markets and to reveal which types of grain will bring the best buck.
“It’ll connect up much better with the rest of the world,” said Squair.
How Glencore plans to conduct business with farmers remains to be seen, making the murky post-Aug. 1 wheat marketing situation even more opaque. Will it do futures-based forward contracting or offer basis contracts?
And will it offer pooling for the CWB? Pooling is still an open question, with even Cargill’s deal with the new CWB still to be fully evolved.
Glencore suggested it would be open to organizations like the CWB moving grain through its system, but has not been specific.
“As appropriate, Glencore also intends to grant third party access to its handling infrastructure at prevailing market rates,” said the Glencore statement announcing the purchase of Viterra.
Tjaden Lepp said farmers will probably enjoy doing business with Glencore because it might be simple. Glencore will probably try to have the most competitive basis on the Prairies because it doesn’t have other incentives to offer.
“It’ll be like doing business with (Louis) Dreyfus. It’ll be more pure, more transactional,” she said.
“I think they’ll compete almost entirely on basis and have the highest price and lowest costs and that’s how they’ll get the grain.”
