Canada Slips on CWB

[TOM4CWB]

bY THE WAY cHUCKCHUCK,

PPO prices lag also lag cash prices in the US... Pooled CWB prices lag US prices going up by months... and follow in tandem second by second on the way down. Millers make sure the CWB marketing dept. gets it on a second by second... blow by blow... depreciation of my inventory... which the CWB refuses to pay me the carry in the market... and keeps.

The CWB 'single desk' system is SICK... Sick... sick.

The CWB 'single desk' system is SICK... Sick... sick.

The CWB 'single desk' system is SICK... Sick... sick.

Get it Chuck?

You of all people should know better.

gO Riders gO!!!

[Fransisco]

It really is amazing how CWB groupies just repeat the same false arguments again and again.

chuckchuck, comparing pool returns to usda weighted average prices is no better than comparing them to US spot prices in fact its probably a worse comparison. No farmer in the US actually receives the weighted average price, lots of Canadian farmers actually get the pool price. The USDA average weighted price is mixed bag of premiums, discounts, grades, contracts and quality levels including feed. And on top of this they use a different cropping year, they go May-June, CWB goes August-July.

But since you insist on going there let me point out that in 02-03 the CWB pools did worse than the weighted average price in everything other than durum. In 03-04, 04-05 and 05-06 the board did worse on every single crop. You can find this data in the informa wheat board report. Even when you stack the best quality board crops against the mixed bag USDA weighted average the board has a hard time beating it consistently.

You talked about US domestic usage. again from the informa report. " Some observers have pointed out that US elevator bids are not a useful comparison because the wheat, durum and barley markets in the US are limited to domestic consumption only. This statement ignores the fact that the US has exported an average of 58% of its spring wheat production and 44% of its durum production, indicating that elevator bids in the US are not simply based on domestic use, but also reflect export markets."

as to your 3 points...

1.) The only thing the CWB has a monopoly over is Western Canadian farmers who have no choice but to sell to the CWB. Check the market share data from the CWB annual report and you'll see that it doesn't have any where near the market share to be called a "monopoly seller".

2.) You say, "The CWB pool returns will lag cash spot prices." Yah, by 2 years! At the end of which you get lower than the average open market price! This argument does not work in your favour chuckchuck. Even if the board did eventually get you the same price everyone knows its better to get your money now rather than 2 years from now.

3.) The reason we look at US prices is because <b>its the nearest actual open market</b> not because we think we can sell all our wheat there. Duh!

Just once I'd like to see a boardie tackle the arguments head on without twisting them into straw men. I actually don't think its possible.

[jdepape]

cityguy:

No, the $30 is not the cost of going from Thunder Bay to the St. Lawrence. (The St. Lawrence is already the official pricing point of CWB grains - along with Vancouver.)

The CWB has never broken down these costs publicly.

Wheat is a lot cheaper? Wheat is $29 and canola is $6 - and you say "wheat is a lot cheaper" than durum? Yes, it is - but you're avoiding the issue - CWB grains are more expensive that non-CWB.

I get the impression you really don't like these numbers and what they say.

The $8.09 trucking is what the Grain Monitor has assessed for trucking from the farm to the elevator. On canola its the same.

The $6.00 revenue on canola represents the price difference between the street price and the instore Vancouver price. The graincos don't charge cleaning as a set fee like with CWB grains. They buy canola in the country and sell canola offshore - if they do their job well, there is positive revenue to cover all their costs and make a profit.

[jdepape]

chuckChuck:

I see Fransisco has beat me to the punch so I'll just add to it.

The USDA weighted average prices represent spot marketings by farmers. So, as Fransisco says, it includes all grades. But, to me, more importantly, it does not include forward pricing on deferred delivery contracts. Many farmers in the US forward price a portion of their crop early in the year - around seeding time (or before) or during the summer.

I know a farmer in Montana that forward sells at least half of his crop around seeding time, bagging a very good price (covering input costs and then some) and then pricing the rest later.

Also, once he delivers, he may buy futures to continue to gain by market strength through the crop year.

Comparing CWB pool prices to "weighted average" US prices is a mug's game (it's futile and meaningless).

What is not futile is comparing the CWB pool price to what the market offered over a crop year. If you hire someone to market your grain for you, most people would assess his performance on your behalf by comparing what he got for you to what was available in the market.

If you compare the pool return to "the market", the pool return fails badly.

I just wrote about this on my blog:

<a href=www.cwbmonitor.blogspot.com>CWB Monitor</a>

[jdepape]

One more thing...

One more reason why the "weighted average" argument doesn't work: Year after year,

<b>the Pool return is lower than the lowest US street price over the crop year.</b>

So - if the Montana or North Dakota farmer sold everything at the low of the crop year, he'd still be paid more than you in Saskatchewan.

I have the data if you're interested.

[jdepape]

As for US freight rates....

This seems to be a moving target for CWB supporters.

chuckChuck, you say the US has lower freight rates than us - seems to support your argument that their grain prices should be higher because they have lower freight rates.

Stewart Wells, a Single Desk supporting director candidate, says in recent news item:

"And when you look across the line at rail freight rates in the United States, they’re pretty much double what ours are in Western Canada."

Interestingly this suits Wells' argument that the CWB helps keep rail rates down.

But which is it? Which one of you is wrong?

[cityguy]

jdepape - the numbers look wacked. I find it hard to believe that durum costs $20 more than wheat. Given that to be the case, I think one has to question why wheat is $20 more than canola. Would have to guess there are things like the fact that the bulk of the durum moves to the east coast (this is a costing exercise so don't think that the fact that the CWB values are basis lawrence/vancouver come into it). In addition a greater portion of canola is used domestically than wheat/durum and the "costs" associated with going to that market are less. (CWB inhibiting canadian flour milling is another topic/thread). Also - you've said that this doesn't include terminal revenues which is pretty important. That may indeed widen the spread.

How do costs compare loading up canola to go export through the west coast versus wheat through the west coast?

or are you implying that getting rid of the CWB would take at least $20/mt out of the system. If so- that's great. But I'm guessing that there isn't $20 to take out of the system.

Just to reiterate, I've got no problem with the idea of dropping the single desk and having the CWB operate in an open market system (I'm not going to drink the dual market Kool-aid logic. OWB at less than 10% market share and the AWB non existant are proof enough for me) but do want to make sure that people walk into change with their eyes open.

Do you believe in an open market system that $20 in costs come out of wheat and $40 come out of the costs of durum?

[jdepape]

cityguy:
As I mentioned, the details of the CWB "costs" are not public. It would be nice (and perhaps appropriate) to know why the large difference between wheat and durum.

The pricing points for CWB grains is indeed an important factor - it is the costs to these points that the Grain Monitor is monitoring, not beyond.

These costs as reported by the Grain Monitor are "export net-backs" - the costs associated with moving these grains to export position. The costs associated with moving canola to the domestic market are not an issue here.

You say the terminal revenues may "widen the spread" - not sure what you mean.

You ask how costs compare on wheat and canola going to the west coast. Pretty much what I've given you.

You don't think that there's $20 to be taken out of the system. Read the Grain Monitor report. When grain companies compete for CWB grains through rail car tenders, they discount their revenues to win the tender. The average winning tender is over $20/tonne (paid back to the CWB upon completion of the tender). When the grain companies compete for CWB grains, they have shown they are willing to cut more than $20 out of their total revenue stream (which includes terminal handling).

You say you have no problem with the idea of dropping the single desk and having the CWB operate in an open market - but then say you're not going to drink the dual market Kool-aid logic.

The CWB operating without the single desk in an open market IS the dual market.

If a pool operates in a dual market, for some reason people think that it needs to have a dominant market share - after all, it did when it was mandatory.

You say the OWB is less than 10% MS - perhaps it is and yet that still satisfies everyone that wants what it is offering.

You say the AWB is non-existent - last I looked it had about 25% MS. Again, perhaps that is "the market" for what it is offering.

I've shown that the CWB actually buys barley from mo more than 17% of all farmers in Western Canada. In an open market, would a voluntary CWB be considered a failure at say, 10% MS in barley?

To your last question: Yes.

[cityguy]

Gotta admit that half time doesn't allow for a full review of the Quarum report. Did flip through 350 pages of tables and 100 pages of writing and couldn't find anything that talked about average tender values which is a shame. They had max and mins paid but not average. Just from the max/min's it's hard to believe it's over $20 as you say. Plus - tenders account for less than 20% of movement and usually it's a "get this stuff outta here 'cuz it's blocking space" deal. Would suspect that the average tenders are in the 8-10 range.

as for the net backs, think that one of the big discrepancies is that durumm has all the eastern costs in there relative to both wheat and canola. Suspect that the CWB simply gives quarum costs beyond Thunder Bay. Remember that farmers in the east are deducted Thunder Bay freight plus FAF though FAF doesn't cover the full costs of going to the St.Lawrence. Lake freight/ tolls and Lawrence elevations will eat up a lot of that $30 costs.

As for the "duel" it's a simple matter of opinion that can't be proven until at least 5 years into an "open" market environment. OWB's 10% share is taken from their annual report and if anything over 0% is considered a success, then so be it. Are there any "pool's" of significance operating in the major US wheat markets?

One thing that certainly stands out in Quarum is the amount of time the various grains are instore the elevators. Canola has the luxury of being basically one grade and from that standpoint is pretty easy to handle. You just need one or two big bins and you're good to blow and go. Wheat and durum has way too many seperations between grades/proteins that ties up space and suspect that the open market would be much more aggressive in trying to cut down on all those splits and try to dumb down the system to a certain degree. Trying to be too cute can cost money in terms of space utilization.

[Kodiak]

So cityguy, if a voluntary pool captures anywhere from 1% to 10%, or 20%, what does that indicate? Is it that pooling invariably has too many costs and is uncompetitive, is poorly managed, or simply not an attractive option for most farmers? In any case, its market share will be its market share, determined solely by the farmers themselves in a free and open environment. And ultimately if it fails to capture any business, what is the loss if it disappears?

[jdepape]

cityguy:
As I mentioned, the details of the CWB "costs" are not public. It would be nice (and perhaps appropriate) to know why the large difference between wheat and durum.

The pricing points for CWB grains is indeed an important factor - it is the costs to these points that the Grain Monitor is monitoring, not beyond.

These costs as reported by the Grain Monitor are "export net-backs" - the costs associated with moving these grains to export position. The costs associated with moving canola to the domestic market are not an issue here.

You say the terminal revenues may "widen the spread" - not sure what you mean.

You ask how costs compare on wheat and canola going to the west coast. Pretty much what I've given you.

You don't think that there's $20 to be taken out of the system. Read the Grain Monitor report. When grain companies compete for CWB grains through rail car tenders, they discount their revenues to win the tender. The average winning tender is over $20/tonne (paid back to the CWB upon completion of the tender). When the grain companies compete for CWB grains, they have shown they are willing to cut more than $20 out of their total revenue stream (which includes terminal handling).

You say you have no problem with the idea of dropping the single desk and having the CWB operate in an open market - but then say you're not going to drink the dual market Kool-aid logic.

The CWB operating without the single desk in an open market IS the dual market.

If a pool operates in a dual market, for some reason people think that it needs to have a dominant market share - after all, it did when it was mandatory.

You say the OWB is less than 10% MS - perhaps it is and yet that still satisfies everyone that wants what it is offering.

You say the AWB is non-existent - last I looked it had about 25% MS. Again, perhaps that is "the market" for what it is offering.

I've shown that the CWB actually buys barley from mo more than 17% of all farmers in Western Canada. In an open market, would a voluntary CWB be considered a failure at say, 10% MS in barley?

To your last question: Yes.

[jdepape]

Not sure why that posted again...
Weird.

[cityguy]

To answer Kodiak, and then I'll leave it be - you're right, don't really care whether some sort of voluntary pool is successful or not in an open market as it's the "open" market bit that is of interest. The only reason for me being a bit of a dink on duel is that I firmly believe that the government completely screwed up that barley plebesite from 3 years ago when they made it a three part question of 1) CWB as is 2)duel (or whatever the fuzzy words were) or 3) No cwb. If it had been a straight up or down 1) as is or 2) an open market that the CWB an play in if they want, I believe that we'd have an open market for barley today. Think that at least 70% would have voted for a change and that the government could have gone to the House and basically said to the Bloc that western barley growers are looking to exercise their right to self-determination, or whatever the lingo is that the Bloc uses, and who are you to say no on this clear mandate. I know basically all AV'rs will disagree with me on the point but I think that muddying the waters with "duel" has left us, actually you as I'm not a part of us, in the mud.