Wheat Stocks At 12 Year Highs

From Seeking Alpha: Global Wheat Stocks At Highs Not Seen In 12 Years

 

The USDA published its World Agricultural Supply and Demand Estimates Report and as expected, export demand issues caused estimates of ending stocks to rise to their highest levels since the 2000/01 growing season. Falling demand for US exports is due to increased global supplies and more competitive pricing caused by the debt crises in Europe, which has caused the dollar to strengthen against the Euro.

Global Supplies

Estimate of global wheat supplies are 9.3 million tons higher in large part due to increases in production around the globe. Upward revisions to beginning stocks in Australia and Argentina also contributed to higher supplies.

These production increases lead in to increase in global ending stocks of 5.9 million tons to 208.5. Ending stocks have not been near these highs since the 2000/01 season when ending stocks were 207.7 million tons. I should also note that during the 2000/01 season the average EUR/USD exchange rate was 0.95 and according to historical USDA data, the U.S. farm price for wheat averaged about $2.62 per bushel. I do expect the Euro to weaken further against the dollar. However, I don’t see the Euro trading at parity with the dollar at least for the foreseeable future.

Imports and Exports

Estimates of global wheat imports for the 2011/12 season are higher due to more demand for imports in Southeast Asian Countries and Mexico. Mexico says that tight domestic corn supplies are boosting demand for imported feed quality wheat. Australia and Argentina have raised exports 2.5 million and 1.0 million tons respectively due to competitive pricing with Black Sea and North American wheat supplies. A reduction in exports of 1.o million tons for the Ukraine and 1.4 million tons for the U.S. seem to corroborate the price competitiveness cited.

Consumption

Higher expected foreign wheat feeding, presumably due to tight corn supplies, has raised global consumption estimates by 3.4 million tons. However, this is not enough to overcome the 9.3 million ton increase in global supplies.

So what does that mean for Canada Bread?  Or Franchisees?

If wheat stocks are high, then if/when Canada Bread raises prices, or tries to revenue share, the reason of “higher commodity costs” cannot be used again.

 

Why does Canada Bread choose not to answer our questions?

Canada Bread is not answering any questions.  They are threatening and intimidating Franchisees by saying a lawsuit will destroy our equity or devalue the brand.

Why are they drawing that line?

I think it’s because they are scared to come to the table.

• Maybe they can’t explain or answer questions on what happened in a coherent and logical manner to another professional such as an external accountant or lawyer?
• Maybe they don’t want to explain what happened because they feel they can operate as they see fit and should not have to explain anything to Franchisees?
• Maybe they don’t want to explain or answer questions because they know the answers will incriminate them?

 

I’m sure we’ll find out soon enough which is the reason.

Private Label: Who wins?

The NBN has done numerous studies on the impact of private label products that mirror branded products.

There are three parties who split the “pie”:

• Customer (account, not consumer)
• Franchisee
• Canada Bread

So, when a Private Label product is launched, who wins?

Canada Bread is the big winner.  Their profit margin increases substantially, while Franchisees lose almost 50% of their revenue compared to the branded product counterparts.

When it is on feature that disparity exponentially increases and Franchisees lose significantly more money.  Each week this costs Franchisees  thousands of dollars.

Inflation? Is it a measure of success?

Canada Bread compares it’s Franchisee’s revenue earnings to inflation.

If Franchisees are “outpacing” inflation then, according to Canada Bread, Franchisees are doing better than the average Canadian and should not be asking questions or searching for information from Canada Bread.