Barley Top Up Payment

[charliep]

From the CWB bulletin.

The CWB will distribute surplus earnings to farmers who participate in the 2010-11 cash sales program of export feed barley delivered thorough Guaranteed Price Contracts (GPCs), if sales revenue achieved over the marketing year is above the average upfront cash price paid to farmers and CWB costs. The distribution will be a flat per-tonne payment, calculated from all surplus earnings achieved (if any) over the entire marketing year from CWB feed-barley cash sales. It will be paid equally to all farmers who participated in feed-barley GPCs, after the marketing year is finished. It is important to note that a surplus payment is not guaranteed, particularly in the face of extreme market volatility. Farmers should base their decisions to participate on whether they find the upfront payment attractive.

Thoughts?

[charliep]

Why not full payment at the time of sale? FOB west coast price minus costs? The issue is redistributing earning between farmers and poor signals to the domestic market. When a farmer is making a decision domestic feed market and export market, what is the price today?

[charliep]

More information.

[URL="http://www.cwb.ca/public/en/farmers/forecasts/barley/"]CWB feed barley program[/URL]

[charliep]

Only one here I know.

I could perhaps understand holding off assigning full value/price to a sale until after a boat is loaded - don't necessarily agree with this but a CWB philosophy could perhaps justify. What gets under my skin is averaging across a whole pooling year with the top up averaged across time and farmers who delivered. I also note the CWB takes administration costs - what are they and how much? What is the grain companies take over and above normal handling and elevation?

[chaffmeister]

I put the following on an earlier thread but with no response.

...............

This is nuts.

The CWB has been selling feed barley for, say $50/tonne more than what it is paying farmers - and nobody's really complaining?!

Think about it for a minute -

The CWB sells at about $260/t and buys from farmers at about $215/t.

In an open market, the full export price would translate back into the prairies - instead of paying farmers $3.50 a bushel (as they are now with the CWB GPCs) the graincos would be paying closer to $4.50/bu.

Soooo.....what do you think that would do to the local price of barley? And the price of malt barley?

The price of the whole crop would move higher to compete (arbitrage). BUT, because the CWB is holding back, the price doesn't get out to the local market and the local price is held down.

Figure on 7 mmt of barley, say a conservative $25/t difference means about $175 million NOT going to barley farmers.

Great system you got there. Hows it working for you?

[Canada-goose]

Not pro cwb by any means but here is how I understand things.

CWB indicates to grain companies some export barley biz likely to happen - due to drought in Russia etc.

Grain Companies signed up barley GPO's from the producer.
CWB tendered for cars via a base price and line companies tendered barley to the CWB based off their GPO prices and tonnage.
Tendered either over or under base CWB price.
If awarded the tender they triggered the grower GPO to cover themselves.
In a sense is that not an open market (to the grower) as they got booked at the price he set/wanted.

In a open market the principle buyer would have kept the margin and not give any back to the grower.

But to flip it around if truely an open marketplace where the line companies can offer direct on export biz - the line companies would not be taking $40-50/Mt margins on feed barley (maybe on the 1st sale) but as export sales continued the grower price would have likely risen and the line company margins would narrow.

Competition between the line companies for export sales would have reflected to the grower a more accurate feed barley price based on those export sales. (at the current point in time).

Guess my point is, farmers that signed up feed barley should be happy this time around. - they got the price they asked for & will get the cash upon or shortly after delivery (i think) and by the sounds of it a top up later.

[charliep]

Not disagreeing.

My issue is the averaging of sales across a whole pooling year.

In an open, sourcing 25,000 for Japanese sale (600 B trains) or a panamax for Saudi Business (75,000 tonnes or over 1,800 B trains) would have a significant impact on the market (including the domestic feed one). Can't say didn't happen in the past month but things have been in secret and what can be described as a very muted response in a very tight Canadian barley supply demand.

I will note this is a new policy as well. In the past the CWB has harvested profits off feed barley sales and used to fund the PPO contingency. You can use the argument that the grain companies would pocket the profits on this international business but in the past both the CWB and grain companies took profits out of feed barley export sales. I guess it is just a matter of who you would rather have picking your pocket.

[charliep]

As a point of interest, has anyone looked at the funding of the PPO contingency fund if feed barley hadn't contributed dollars either via profits on cash trading or use of the interest on old debt from historical feed barley sales? Feed barley has carried the vast majority of the funding of this fund.

[charliep]

Canada-goose

A small point but my understanding the grain companies are the ones that bring the business forward - not the CWB. Only other issue is the grain companies are the only ones who can package the logistics and inventory around a 75,000 tonne Saudi feed barley sale. The CWB doesn't have that kind of inventory in the system.

For spot sales (those for delivery in the next 2 months), it takes a significant amount of coordination to put feed barley inventory together for the 200,000 tonnes of business that is talked about - particularly in a year of 7.5 to 8 ish mln tonne western Canadian barley crop.

[Canada-goose]

Charlie,
all of your above statements (throughout the thread) are fair and have no issue with what your saying or the questions asked as they are good points of interest.

Some of your questions I can't answer for you.

Bringing the biz forward - yes grain companies convey opportunities to the growers but CWB still facilitates the discussion of possible or confirmed sales (I'm not too sure on how everyone finds out the actual sale price overseas unless there are moles everwhere - we are living era of the world wide web)

From there I would hope the grain company employees provide an accurate market assesment to the growers for them to make their own marketing decision.

Yes it is a big logistical task to have grain in place for vessel loading in a small window. (Usual ETA dates for a vessel is a 2 week period)

BUT that is what the line companies get paid to do when handling CWB grains. Facilitate the grain movement from origin to vessel.

Includes the help of the CWB sales programs/railways/line company infastructure and farmer participation.

And the goal in mind s/b that all make parties from grower to end use customer makes a little money every time. And not have one of the above parties pick pocket too much! That should get some good responses going.

I know some will think what kind of world is this guy living in.
Hey I know it does not happen near enough - lots of greed in this world.

Here's hoping the weather straightens out and all involved gets their grain to the bin.

[charliep]

I'll add another complexity to the above.

As a grain company or CWB, would you short the market right now. I ask the question because I note the beginnings of some trade in western barley futures (not big open interest but at least a little bigger).

I won't under any shape or form short todays market. Therefore, I would likely try to cover risk if I was grain company or the CWB by using futures (if available). If we had a fully functional futures with good volume and members of the industry who used regularly as a risk management tool, I suspect there would have been a far quicker price response.

The current market shoves all the price risk back on farmers in spite of a significant volume of sales. The CWB and grain (they are both the same in this transaction) cover their by as close as possible going back to back on export sales/feed barley purchases from farmers.

Likely have lost everybody but the process of watching a sale come together from the price, delivery and logistics side is something that is facinating to me.

[chaffmeister]

Canada-goose:

I agree and disagree.

You said "Competition between the line companies for export sales would have reflected to the grower a more accurate feed barley price based on those export sales."

Agreed - that's the point I was trying to make earlier. But what seems to be lost in the discussion is the cost to the industry by not getting that export price reflected in local markets. It's huge. Am I the only one concerned?!

Next you said "farmers that signed up feed barley should be happy this time around. - they got the price they asked for & will get the cash upon or shortly after delivery (i think) and by the sounds of it a top up later."

You get $3.50/bu for something that is being sold for $4.50/bu and you're happy about it?!! Are you happy about it because you were told you might get a bit more (key word is MIGHT and if you do get a top-up, there's no guarantee that it'll be anywhere near $1.00/bu.)

AND - the price of the barley you're selling elsewhere - say non-CWB to the local feeder - would be much higher as well if the export values were properly transmitted to the prairies.

In the last month Australian DOMESTIC feed barley (local - farm to feeder) has risen $65/t due to export values. In Alberta - nada. Zip. Zero. Flat.

Every barley farmer out there is getting ripped off - EVEN THE ONES THAT SELL ONLY LOCALLY - and all we can talk about is logistics?!

Sheesh! It's no wonder we have a problem!!!

[chaffmeister]

Since you asked, Charlie.....

Since inception of the Contingency Fund (CF):

From PPOs ............ -48.4 million
From pool accts ...... 28.2 million
From cash trading .... 22.2 million
Interest earned ...... 2.7 million

Of the 28.2 million from pool accounts, 21.0 was from feed barley pools (75%).

Of the 50.4 million from pool accounts and cash trading combined, 43.2 million (86%) was from feed barley.

Interesting fact - all the money the CWB has taken from the feed barley pools and feed barley cash trading isn't enough to cover all the losses in PPO trading since inception.

When the PPOs and the CF were created, they were supposed to be self-sustaining. The only reason interest revenue from the barley pools was dumped into the CF was because in 01-02 the CWB had to remove interest revenue from the pool account or else have an embarrassingly large payment on an embarrassingly small pool.

How much of this latest fiasco will end up in the CF?

CF also stands for Cluster F___

[Canada-goose]

I'll try to end this - well on my end anyway
I don't think at the start of the export biz that anyone ever mentioned there MIGHT be a top up by the CWB. I never heard that.
I believe since there is a big price spread from what the farmer wanted on his GPO and got booked at, by the line companies (BTW which was better than prior domestic levels) compared to export sales price the CWB proposing to give some back to the farmer.
How CWB dispurses money & thier adm cost etc I won't get into that - too much debate how it'll be determined.

As for local domestic feed price well lots of factors are keeping the feed lot alley price from appreciating as quickly as the export.

Lots of other options for feeders to use - feed durum was a big a month ago, cheap corn DDG's offered weekly, cheap by-products (ie: mill run & malt sprout pellets), pasture's and hay in good shape. One of the biggest reasons cattle numbers are down in feed lot alley at this time, so demand is not there.
With late crops these feeders are not covered and they know higher prices likely are around the corner but they are hanging onto the thought of JACK FROST comming to town - which if a big feed wheat crop across the prairies does materialize what will the local domestic feed grain prices be now. Feeders won't give a crap about export barley price as they'll feed wheat and other choices.

The local cash market always takes time to catch up if export pricing sky rockets.

As for is he happy - probably not - but is he happy when he sells canola and the next day it jumps $.50/bu.

My point is: If you sign a contract/GPO and get the price you asked for you should be happy as it was your choice to put that price out there.(unless forced sell by the banker)

By the amount of tonnes reportedly sold alot of growers like the prices at that time.

Hopefully growers only sold 25% of production and have more to offer with a triger price of $4/bu and the export marketplace will continue to buy it.
Over & out

[IAMTHEMOLE]

At this point it is the overall lateness of the crop and the lack of combining by this date which keeps feedlots on the sidelines, not just the prospect of frost. Farmers should be motivated to keep harvesting and to minimize down time. Therefore if barley is harvested at a higher moisture and you can find an end user to take it the farmer will most likely do that as long as the price is not too bad....say 3.20 del lethbridge for 16 to 17 percent barley. Of course if the farmer has an unlimited access to aeration or grain bags this will not happen. Chances are that no tough barley will hit the export market.