CWB tendering, does it work?

[TOM4CWB]

Charlie,

I have been watching CRSR being tendered this fall, and have encountered the following remarks:

$7.00 - 8/t discount to published handling and cleaning rates have been done by various grain companies.

When I asked if I participated in the tender, would I get the premium. The answer was no. The tender savings is past through to the pooling accounts, not the producer making the delivery!

Do I have this straight, we; the grain company and I take the risk on delivery, quality and loading penalties included, and the CWB pooling account gets the money for our work and risk?

Was this actually supposed to work this way, why would I ever want to be involved in one of these tenders?

[TOM4CWB]

That was CPS Red Wheat.

[rain]

I can understand you wanting to tender your wheat possibly. But what are the cash values for feed wheat where ever you are. Around Calgary we are $4.00 FOB bin.

[TOM4CWB]

Rain,

Through the CWB, Tendered and non-tendered wheat is paid the same amount of money per tonne.

In fact, if a producer had a CWB fixed price contract, the pool account seller would likely get more, as if enough wheat of a certain class is tendered, possibly the PRO could rise $2.00/t for that class?

Or maybe I am wrong and the tender benefit is spread over all classes and types of CWB wheat and barley, and diluted completely?

Then the benefit might be $.50/t to the pool?

At any rate these CWB tenders don't significantly affect the amount we recieve for our non-board feed wheat, do they Rain?

[rain]

The PRO most likely influences the price you get for your nonboard grain more than the tendering process. If PRO looks good producers tend to hold.

This year cash is well above the PRO. that could change. Down here 4-4.15 for feed wheat is being considered and corn is the limiting facto for up side.

Wheat and corn are much better value than barley as far as feed cost go.

You under stand the working of the board better than I do. Right now with the system the way it is we use the CWB to decide which markets to go for.

[TOM4CWB]

Rain,

The point is that if the $7.00-8./t tendering benefit was directly benefiting the farmer selling the wheat instead of the whole CWB pooling system, then it would have a much more direct effect on non-board prices!

If the CWB really was working for us, then there would be nothing wrong with the tendering system "narrowing the "basis"" directly on the grain that itself was tendered.

The compound effect would multiply the return many times more through the non-board system than just attributing it back watered down through the pooling system!

[Braveheart]

Tom4CWB, you have raised an important and explosive issue. The CWB has been tendering 100% of wheat movement so far this year. (As you know, they are required by law to tender a minimum of 25%.) In order to be successful in winning a tender, companies have been bidding $8 to $10 under their normal handling charges. Then, the companies are keeping rail incentives for large multiple loadings, and other "perks" such as off the grid protein points, etc., to make up for the low tender bid.

The CWB then puts that extra $8 to $10/mt in the pool accounts and shares this with farmers participating in the pool.

This has created a serious lack of competition for the handling of western wheat! The rail incentives were a major tool the grain co's had to attract grain. Now they have to keep them to replace lost handling revenue!

The CWB's approach on tendering is fundamentally flawed. It tries to level the playing field amongst producers and their ability to negotiate grade, protein payments, and rail incentives/trucking premiums. As usual, the wheat board has brought all producers down to the lowest common denominator, except for one class of producer.

Producers that are using the Producer Payment Option or Fixed Price Contract are not in the pool accounts and won't share in the CWB captured "premiums". I think there are grounds for a lawsuit on this issue.

This is an important issue. Let's hear some other thoughts.

Regards,

Braveheart

[TOM4CWB]

Braveheart,

I am concerned about the lack of transparency in the tendering system.

My dealings with the line companies have shown that in the the current crop year, in Alberta anyway, that Canada Prairie Spring is being tendered, but that CWRS is not, with freight still being paid on the CWRS.

Now how do you or I know what exactly is being tendered, and what we should expect our approx. $4.00/t freight rebate on?

This leaves the grain handlers in the position of having information we cannot access, except when the complain about a situation that went against their interests.

From my dealings, it appears the the grain handlers must know who gets what tender, and at how much of a discount!!!

Now we farmers if not really on top of their info network could really be squeezed.

Braveheart the PPO contracts are really getting the short end as you have said.

The multi national grain companies will not go broke using the tendering system, they are masters at twisting an uncomfortable situation back against those who would try to extract money from them, just like the railways have done.

The sick part is that our western owned co-operatives, that we farmers jointly own, will ulimately end up on the short end of the tendering situation, I am really afraid.

And without transparent competition, we are really vulnerable, would you not agree Braveheart?

[charliep]

Braveheart/Tom4CWB

Could I get one of you to go through the CWB tendering system mechnics and how this has changed the way grain companies do business with the CWB. This is an important issue for farm managers to be aware of and follow. It is also a matter of evolution so it is important to have thought out where the agr. industry needs to be at with this process in 5 to 10 years time.

[TOM4CWB]

Charlie,

This tendering system is secret, and very difficult to get a picture of how exactly it works, now a few observations;

CPS Red wheat in Alberta seems to have been mostly tendered this fall.

Tenders appear to have been $7.00-10.00 off normal handling charges which goes back to the CWB pooling accounts.

It would appear that the tendering discount is distributed to the whole pooling system, not to the specific class which was tendered, although this is not clearly defined anywhere I can find; maybe thalpenny can help on this one.

Some grain companies do not offer the normal $3-4/t freight incentive on CWB tendered grain- they say the CWB got the freight loading incentive back through the tendering discount.

I get the feeling that CPS movement is primarily by tendering. It is not clear who tendered which classes of wheat, and this then brings a fog into the freight incentive premiums paid back to producers normally.

If the tendering premiums are paid back through all classes of wheat, and CPS is 75% tendered and CWRS is 12% tendered, then CPS producers are really loosing big time, and CWRS farmers gaining the benefit.

If someone else has gained practical knowledge on this issue, and could break "commercial confedentiallity" we would all be the wiser on how this system works.

I understand the WGEA signed a three year agreement on tendering.

[charliep]

The CWB has posted a newsrelease on tendering on their web site.

http://www.cwb.ca/grainmov/trans_agree/gmr1.shtml

[TOM4CWB]

thalpenny,

I really wonder how much the CWB is able to leverage from a grain-handling sector that is not considered to be profitable to begin with?

Do you not think that Canola, Flax, Pea and Lentil, Domestic feed barley and wheat grain producers will pay the price of CWB tactics?

What I am saying is that as long as we still have co-operative owned elevator companies, and they are not making money on handling grain, can you squeeze blood from a stone?

For instance the CWRS #1 high Protein shipment that was tendered to Thunder Bay at a $12.50/t discount, the total elevation that is normally charged, do you actually believe grain handlers can do your business for nothing?

Is it not more likely that the basis levels on non-CWB grains will increase so grain handlers can survive?

What about the CWB trick of over supplying cars after a tender has been awarded?

What do I mean?

I have 30 cars of a specific type and grade of wheat the CWB has left sitting in my elevator for 6 months, and I really think it is time to move it on out. Now I need another 20 cars to make a 50 car incentive rate with the railway, and with the contract openings I can likely attract the additional 20 cars, enough grain to fill the 50 car spot.

Now all along I have been asking the CWB for 30 cars to move this wheat, and the CWB has refused to allocate shipment for the last 6 months.

What happens?

I tender at say a $7/t discount to get movement, and the CWB accepts.

Not a week later after the CWB has issued the tender award to me, guess what?

Someone in the Winnipeg CWB now allocates the 30 cars I had been asking for all along for the last 6 months!!!

Now I have to dig up 50 cars of this same wheat, instead of 20, and the contracts are not open enough to allow it without trucking for huge distances!!!

I do not want to turn down these 30 cars, as turning down CWB allocation means I am perceived be a an unreliable CWB shipper!!! If I am an Alberta shipper, I will have to eat a higher freight rate if the tendered cars I now can’t handle go further east to fill the extra 30 cars I cannot access because the contract system won’t allow delivery efficiently to my elevator.

On shipping dates I understand if I tender today, and am awarded the tender, the CWB has the right to call the tendered wheat any time between the 20th of November and the 20th of December.

Now I do not know, and you will not tell me when the Contract calls will be opened, and you can plug my elevator for a month, with no storage, at my expense!!!

Is this efficiency and getting maximum usage of my elevator, and allowing me to logically plan ahead, deal with weather problems, grading issues ETC?

Haven’t all you done is restrict my operational flexibility by restricting deliveries through the contract call system, rammed cars at me when you knew I would not be able to source the grain, while penalizing me if I don’t deliver you the right grain at the terminal position?

Is this really the most constructive efficient way to smoothly turn cars and deliver the right product to our customers at the right time with the least work and storage and trucking costs within the grain handling system?