Is the Video Working! You bet your ASS it is!

[jdepape]

chuckChuck:

You’re getting scattered again. Let’s focus on just a couple of things – the ones that might have an impact on the premiums question.

Arbitrage is not a theory. It is how all markets work “in the real world” – unless they are interfered with or manipulated.

Your example of futures markets does not invalidate the concept of arbitrage in cash markets. In futures, the funds are very large players that can have an impact on the relationship between cash and futures. When you have large players distorting the relationship between two cash markets, then we can talk about how arbitrage isn't working.

Oh yeah – we have that already with the CWB. In feed barley and feed wheat the CWB doesn’t allow the domestic feed markets to arbitrage to the offshore markets.

Poor arbitrage = poor price discovery = poor efficiency.

chuckChuck on premiums:
“When the CWB posted a premium of 6.65 in 2008/2009 that includes all grades of wheat. It is unlikey that there is little if any premium in the highly competitive lower grade markets.
But it is likely there is a lot more premium in the top quality grades. I am assuming that the premiums are passed on to farmers with higher prices for higher grades.”

<b>You “assume”? "Likely"? I’ve never seen anything from the CWB indicating that. But the CWB has said that the grade spreads in the pool accounts are “market-based” spreads. This means that any premiums the CWB might get on high quality sales are shared. You might want to check with the CWB on that.</b>

chuckChuck on the US market:
“If North America is a premium price market for high quality which I believe is true, then the higher proportion of domestic consumption in the US would be a price advantage to US traders and farmers.
Another way to put it is we are more dependent on a basket of export markets many of which do not have much premium if any because of competition from other suppliers.”

<b>You don’t seem to get the idea of arbitrage.

Perhaps this is where we are on different wavelengths. I think what you are saying is that our whole wheat crop is worth less because we sell more of our crop into lower quality markets. But what I’m saying is that when we compare Canadian to US prices, we compare on a grade-to-grade basis - not the whole “basket”.

THERE IS NO REASON TO BELIEVE THAT THE CWB GETS MORE THAN ANYONE ELSE FOR WHEAT OF THE SAME QUALITY AND SALES TERMS.

I don’t want to get distracted away from the earlier discussion about premiums vs costs. You still have not come back with your response.

I would like to get closure on that before we go on.

How about it?

NEGATIVE $3.49/tonne.

CWB’s own numbers. Do you agree with it or do you still refute it?</b>

[chuckChuck]

John,

Below is what the CWB says about many similar points you have raised. I think it well refutes many of your key arguments.

All your musings about arbitrage and your comparisons of US to Canadian prices seem out the window based on what Ian White is saying.

Why you continue to say the CWB doesn't earn premiums after the Informa report clearly says they do, is beyond me.

I am not an expert in this area nor do I have enough information to research this issue further.

Since we elect farmer representatives to oversee the work that the CWB does I will put my faith in them to make sure that they represent the various points of view that are out there on various issues around the operation of the CWB.

I would assume that they are well briefed on the issues.


Alberta report misuses data to reach false conclusions: CWB

August 8, 2008

Winnipeg – An Alberta government report has used false assumptions and selective data to undermine the value of the CWB, its president and CEO Ian White said today.

“This study is badly flawed,” White said. “The authors have made sweeping assumptions to create comparisons so simplistic that they are meaningless.”

The report, commissioned by the Alberta government and prepared by Informa Economics, was released last week. It calculates on page 34 that the CWB earned significant premiums (prices above market values) of up to $33 per tonne in 10 of 11 markets studied, but then uses a number of incorrect assumptions to discount them.

The report wrongly assumes that all wheat is the same and that overall market share is what determines the CWB’s ability to exercise market power, White said. It ignores the crucial fact that the wheat market is not homogeneous, but made up of many segments that purchase specific kinds of wheat. In certain segments, the CWB will hold a very large market share for a particular kind of wheat and thus earn substantial premiums.

Because of its flawed premise, the report selectively focuses on only 11 of the 60 to 70 actual wheat markets the CWB sells into each year – rejecting important, high-value markets like Canada, the U.S. and Europe. Based on false assumptions about what grades or qualities of wheat these markets were buying from Canada, the report then wrongly adjusts and discounts the higher prices achieved by the CWB in 10 of the markets.

“This adjustment does not reflect how grain marketing works in the real world,” White said. “Wheat is different, markets are different and our strategy as a single seller takes advantage of exactly that fact.”

The report also blatantly misuses grain handling and transportation data published by the respected Quorum Corporation, which produces the quarterly Grain Monitor report under contract to the federal government. Quorum emphasizes in its reports that efficiency comparisons cannot be made between wheat and canola based on its calculations of export basis and producer netback for each crop. Yet that is precisely what Informa has done.

Examples of other flaws include:

* Lack of acknowledgement that the CWB’s dominant position in the durum market supports the overall price structure.
* Comparisons to U.S. elevator prices, which are based on a different set of market factors than Canadian wheat returns. American wheat has an intrinsic price advantage due to factors such as the dramatically lower proportion exported from the U.S. (40 per cent compared to 80 per cent in Canada). This means less U.S. grain is sold into diverse markets outside North America where prices tend to be lower and transportation logistics more expensive.
* Handling system costs are counted twice in the comparison between U.S. and Canadian returns for wheat and durum. Farmgate values that already account for system costs are used, then a canola-versus-wheat comparison is added that also accounts for those same costs.
* Failure to account for the CWB’s ability to assure customers of long-term and consistent-quality supply, which is a valuable competitive market advantage, attributable to the single-desk structure.
* Failure to acknowledge the dramatic differences in U.S. and Canadian rail capacity. The study also fails to account for the important role played by the CWB in keeping regulated rail freight rates in Western Canada lower than American rates.

Based on all of the above, the CWB completely refutes a key finding of the report that an open market would generate significantly more revenue for Prairie farmers than the single-desk system.

“It is ironic that this false conclusion is being circulated in a year when the CWB marketing approach has delivered extraordinary returns to farmers,” White said. “We’ve conservatively pegged that benefit at $560 million for 2007-08.”

White said the CWB will conduct further, more in-depth analysis of the report’s methodology and conclusions and intends to share those results when completed.

Controlled by western Canadian farmers, the CWB is the largest wheat and barley marketer in the world. One of Canada’s biggest exporters, the Winnipeg-based organization sells grain to over 70 countries and returns all sales revenue, less marketing costs, to farmers.

-30-

Maureen Fitzhenry
CWB media relations manager
Tel: (204) 983-3101
Cell: (204) 227-6927
maureen_fitzhenry@cwb.ca

[jdepape]

chuckChuck:

Minus $3.49 per tonne.

Agree or disagree?

[chuckChuck]

Disagree! Is Ian White wrong?

[jdepape]

This is a good indication of the problem.

According to its Annual Report, the CWB earned premiums totaling $6.65 in 08-09.

(You seem to agree with this.)

The Federal Grain Monitor reports CWB cost information (provided by the CWB). For 08-09, it (the CWB) reported costs to market wheat of $10.14.

Not a made up number, bot spun to embarrass the CWB - its the CWB's own number.

Add them together and you get a minus $3.49.

And you disagree.

But you don't say why.

Typical.

[chuckChuck]

Jedpape,
Ian White's media release said why your analysis is wrong.

[jdepape]

Should read:

Not a made up number, not spun to embarrass the CWB - its the CWB's own number.

[gregpet]

chuck, this is not really an analysis. As John has pointed out these are numbers provided by the CWB. No spin anywhere which shows a loss. Do you agree with these numbers or do you have a way to dispute the CWB's own numbers?

[jdepape]

Chuck:

The CWB's release doesn't say a thing about the CWB's internal costs - the costs to get the premiums.

And the numbers I am asking you about are not an analysis. They are the CWB's own numbers. Period.

So, to be blunt - you're wrong. If you really want to understand what is going on, please reread the CWB's release. If you still say that it contradicts the CWB's numbers that I am asking you about, then I will have to conclude that you can't read.