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Wholesale pricing, transparency and accountability

I have often said that we do not set the price of our produce, that it is set by the wholesalers and more specifically, the market.  Prices for produce are based on auction results for base goods, and the price you receive varies depending on the quality of the good you produce.  It is convoluted, it requires a lot of supervision, and the vast majority of changes are market-driven.  However, because there's money involved, always expect some level of fraud.

All our financial assets are managed by my old firm.  I have dealt with the same broker group my entire career.   Inside asset management firms there are various broker groupings, sometimes they are family, geographical or language-related.  My old firm had two teams of brokers that had a high concentration of german speakers.  In my case, my broker joined the firm the same week I did, we trained together and I was his first client.  I liked how he thought, we still have weekly conversations and he remains a good friend and a great broker.  The voice of reason in our portfolio (Thanks Andrew).  As a client of the firm I  received a lot of data on the market and my portfolio.  I asked certain data be sent daily.  This is in no way a breach of the information that our brokers receive from the market.  We get daily closing prices on about 1,000 financial products which include options.  I hired a programmer (again someone who works for my old firm) to build a collection point and a model.  This means that daily, I know all the latest closing prices, but I also have forwards and options for several agricultural financial products.  Some of the data is direct to our production others have a high correlation to our produce.  In a nutshell, the farm runs a sophisticated modelling software that tracks the current and forward prices of our farm production.  It is this model that showed there was a massive price bump in the UK wheat forward market.  The forward market is real demand as the buyer takes delivery.

As the farm moves up the value chain, this data becomes less critical.  Right now more than 60% of the farm's revenues are dependent on this information.  We rarely have disagreements on the pricing or conditions of our goods.  In several instances, our wholesalers have visited the farm and seen our market data screens.  The first time in 2020, the guys looked at my data and setup and realized that we deployed sophisticated algorithms to track our produce prices.  Again, I set this up in 2019, they survive with legacy systems.

You will ask how Jennifer deals with all this.  The short answer is like a fish to water.  The introduction was challenging but within a week she understood the power she held in her hands.  Jennifer now handles about 90% of our wholesaler conversations, from time to time I get involved, but the last push, to enter into a bunch of wheat forward contracts for August delivery was all her.  She contacted the broker, and arranged the contract with a nearby farmer for seeding and harvesting the 500 acres of land we had selected.  Granted I got involved before signing the forward contracts, it was her first, and within an hour or two she understood how they function, and their pitfalls.

After the debacle of the 2008 financial crisis, market transparency has increased.  Granted, it has been begrudging, but completed because the markets were riff with fraud (price fixing being the worst).  A new bill has been presented to parliament that will benefit milk farmers providing them with a better understanding of how their goods are priced, what they can do about it, and the value of certainty over higher prices (which is the real sticking point for dairy farmers).

Interesting stuff 

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