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Honored Advisor

cx-1/canceled sales/reject ships/ answer.

cx-1,

 

Got the response I was waiting for from a contact in the business.  In regard to the question over cancelation of shipments and sales to china.------------- "

 

 

 

 

Will sw, or some producer

that understands details of cancellation process on export sales, please explain it. about to be 100% sold. soy food for thought.

 

i mean if a contract for future delivery is bought i assume a cancel would have to involve a sell back of sorts??? who buys back, etc?

 

thank you!

 

----------------------------

The response I got

 

To answer your question regarding China this is their way of walking away from $8 corn when its dropped to $4.   They use some excuse like GMO, quality or the wind is blowing in the wrong direction to just cancel a contract and you have very little recourse.    In a lot of cases with the major grain companies like COFCO, China Grain and others you can negotiate a settlement.  With the second tier buyers you are out of luck.   In the 2003 we were selling corn to several Chinese companies and almost all tried to walk away from the contracts.   We had enough cash deposit to cover the shortfall.

Once you decide they are canceling or walking away in transit or in port your only alternative is to sell it to someone else.  It will be at current market prices or usually at discounted prices because they know you are stuck.   The bottom line is the demand is still there and the grain is consumed.

 

Unfortunately it is how the Chinese operate and you just have to consider that when you do business with them.  The vast majority of Asian customers are reliable and perform.   The Japanese are the toughest negotiators but once they commit they perform.

------------------------------------

 

 

Sorry I was a little slow cx-1, ---------------- it is a great source, I cannot quote(to keep family peace)  and a question I had been wanting to ask him for a while.

 

He somewhat confirms the input we have had and our suspecions, but it is nice to have confirmation.

 

 

 

 

 

 

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6 Replies
Veteran Contributor

Re: cx-1/canceled sales/reject ships/ answer.

That is simply not the way international grain business is done.  Not with the Chinese or anybody else.   Are there contract disputes? Sure but they are negotiated in the same manner as with domestic customers.

 

It is not helpful for the American producer to think the international buyer dictates these terms.  They don't.  The most deceiving term in the grain trade is "cancellation".  It implies that people walk away.   They do wash out trades from time to time with equity settled.

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Honored Advisor

Re: cx-1/canceled sales/reject ships/ answer.

 

 

 

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Advisor

Re: cx-1/canceled sales/reject ships/ answer.

That is even more sinister.   Bottom Line.   When orders are cancelled, market prices plunge.  The only one left holding the bag are the producers of the product, because there is no honest price discovery method.   It is total manipulation.  Settlements are made and money changing hands in sleight of hand deals, brokers win, Chinese win, producers are the big losers.

 

Thanks for clearing that all up. To summarise in two words.

 

We're screwed.  

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Honored Advisor

Re: cx-1/canceled sales/reject ships/ answer.

BF.....good post.     Looks like we need someone to put a stop to this crap.   Gee, it seems like it would be a good job for our Secretary of Agriculture to take on.  It would be nice for him to stand up for American agriculture.

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Honored Advisor

Re: cx-1/canceled sales/reject ships/ answer.

Sorry Kstater85 my hands are a little bit tied on this one.

 

I struggle with your desire to see international trade being any different than every other market we deal with domesticly.  The american producer deals with similar issues in many markets.------------ on the level of "how business is done"

 

From fertilizer to equipment, from land to chemicals, the same dynamic and issues persist.

Most of our markets have too few participants and too many dominant participants.  And when things change, power is played,  unfairly but it happens.

 John Deere imposed waiting lists on customers in the 1970's,   money up front insured you moved up the list or if your name was on the list 4 times etc etc

Nitrogen no longer follows natural gas prices because production has become a monopolized market

etc etc etc  it goes on.

We have markets that do not function as they should because they are dominated by large players who demand and get different treatment.  Why would a producer expect international trade to be different.

I have watched farmers try to find ways to get out of forward contracts because the price went up.  In very interesting ways.  Sometimes with the use of insurance claims.

One large owner of feedlots has a strong influence on the basis for corn locally and the fact that they helped get a unitrain unloader into the area in a corn deficit region manipulated the market locally.  It was not stopped because it was going to be adverse to local producers.

 

It is trade and business, with the dynamics of size to an extreme where China is involved, and there are two main sources of soy and corn.  As the exec. I posed the question to said, the market is stabelized and backed by the fact that we still produce it and they still need it,  so things work out.  ----------- But hardball is played when markets change that extremely over a few months.

 

If you want to look at a real interesting, and beneficial to producers, market that includes China's business strategies.  Look at the herbicide market and the sourcing of generic material and labeling.  

Our markets are manipulated and manuvered stretching legal boundaries domesticly as well as internationally.

 

It's business.  Even if it takes a gmo scare in Washington to gain an advantage, or the pumping of a political issue in the media.

Veteran Advisor

Re: cx-1/canceled sales/reject ships/ answer.

And, it's probably realistic to assume that domestic markets react quickly to some misconceptions about what happens when sales get "cancelled", most notably some likely inaccurate perceptions that "cancellations" translates to sales/export reductions, thus futures sales and price declines.  For the skepticism in all of us, it's not difficult to see that a sizeable "cancellation", even if fully compensated for immediate price differences, can be profitable for the purchaser by replacing the cancelled product with cheaper product in the ensuing price decline (after word gets out), perhaps by even re-purchasing the exact same cancelled shipment at a lower price, since it still has to go somewhere.

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