cwb tendering process fails

[TOM4CWB]

thalpenny,

Tom,

I understand you are doing the job that you are paid to do, and doing it to the standards the CWB demands... I hope that this forum is taken seriously by the CWB management, because it seems to me that the CWB elected directors are leading you and your management into a black hole.

Everest did a very logical and defensible job of explaining why your CWB is in big trouble, and why the parliamentary Committee on Agriculture made the recomendation they did...

Please notice they didn't recomend Minister Ralph Goodale change the CWB act, they just asked you to allow marketing choice, which is perfectly within the CWB's powers as the CWB Act is written today...

Too many lawyers have lied to many times, and it is obvious the CWB's legal dept. will cause the end of the CWB's integrety with farmers totally if CWB management keep listening to them...

Tom please take the things written here professionally, not personally, for I believe this is how they are meant, way down deep.

Many answers are needed, and everyone is cutting back in the industry, because of high costs and low income, except for the CWB, what are you going to do about this at the CWB?

Is the CWB willing to take their fair share of the pain?

[TOM4CWB]

Everest - thank you for your comments.

Commercial - I'm not sure exactly what you're getting at here. Companies are free to provide bids or not to provide bids. The CWB evaluates those bids based on the economics of the bids - the most aggressive bids usually get satisfied first, which only makes commercial sense.

The performance - on both sides of that contract - come with financial penalties for non-performance (eg delivering the wrong grade) which aids the effort to get the right grain to the right place at the right time.

NO one is forcing grain companies to bid at the levels they did this year - it was commercial decisions made by each individual company.

2. Value added - sure, the low dollar attracts investment in all sectors. But a bigger factor was the removal of the two price wheat system in the late eighties/early nineties, where we had tariffs at the border, and a higher price to mills in Canada.

The pricing to all domestic mills is based off of Minneapolis, with adjustments for the regulated freight environment for mills in western Canada. This formula is developed in cooperation with the Cdn National Millers Ass'n. There is full flexibility for the mills in the timing of booking, forward contracting, basis swaps, etc. The flour and flour products trade to the US has increased, and those products are not sold cheaper in the US as the lower Cdn dollar assumption implies.

One can debate the reasons why investments were made over the past decade, but the facts remain. I still don't envision an 'explosion' of value added if you get rid of the CWB. That comment assumes that the acquisition price of grains would be lower to attract the investment, which of course is not good for farmers if that was the case. The domestic market jockeys for the CWB's top customer position nearly every year right now.

3. Playing Robin Hood. There were still trucking premiums paid this year. Perhaps this argument should be directed to the grain companies, asking why bid so aggressively on tenders instead of offering trucing premiums?

Remember that the grain companies can place the cars awarded by tender ANYWHERE within the port catchment area. So the cars aren't spotted by the CWB. The tenders do ensure the right grain is shipped to the right port at the right time, and minimizes the inhouse storage time.

As conditions change, the companies' tendering pattern will likely also change.

Regarding companies paying trucking premiums, etc. - I wonder - what did people think they were going to do once the system gets rationalized? We are under 500 elevators on the prairies now, down from about 1100 in 1998. Why would they offer trucking premiums where they don't have to? In the absence of the CWB, do you really think you'll see the trucking premiums at the level of the over-capacity late nineties?

The railways have engaged in 'advance booking' of cars on a negative tender process. The shipper bids how much penalty they would pay in the event they couldn't ship the cars at the prescribed time. The highest penalty bid gets the cars (and hopes they can perform). This is how all players are locking in car supply. Although it is more efficient at the terminal to receive a unit train of the same commodity, the companies can mix non-board and CWB cars in a unit train.

So two questions - how would you propose that the CWB distribute the savings that are being provided through the open-bid tendering process? And two, once the company has bid aggressively to get the cars, where is the incentive to pay farmers to draw in the grain? The marketplace has evolved this way through the commercial decisions of the grain companies - so I question why the criticism of the CWB.

By the way, the arguments made are the same ones the CWB made when arguing that we shouldn't have a mandated tendering system... the CWB didn't pick this environment.

Tom4CWb - I'll try not to let my sensitive side get pricked by the comments that are less constructive ...

Tom

[prairiedog]

thalpenny implies suprise at the WCWGA's opposition to the current CWB tendering. His surprise may be tempered by the fact that the CWB adamantly opposed tendering thoughout the Estey/Kroeger process.
The WCWGA supported tendering of CWB business on the basis of the CWB taking possesion of wheat and barley at spout in vessel. This was as close to a commercial system as farmers would get, given that the CWB remained a monopoly buyer. The CWB went to Ottawa and cut a deal( memorandum of understanding) with Ralph Goodale to get control of the elevators and shipping. Now, of course, the CWB braggs about the so called benifits of "tendering".

[prairiedog]

prairiedog - aside from the fact that the grain companies could capture blending revenue at terminal position if the tenders were at spout position, how would tendering at spout have changed things?

I think it would be just as competitive and the $$ would be offered up by the grain companies to get the volume of business regardless.

Tom

[charliep]

Any thoughts on how CWB tendering will change in 2002/03 in an extremely short crop year - particularly with 50 % tenders.

Other years, the strategy would be capture the tender (buy access to the market/terminal utilization) by bidding aggressively. Once you have grabbed rights to the market, then you can source at your leisure.

In the current crop year where supplies are short, the domestic feed grain market is above almost all CWB PRO forecasts and the farmer will not be a willing seller/try to squeeze the last penny out of prices, this would seem to me to be a recipe for disaster.

My strategy (if I were a grain company) would be to get aggressive in the country with trucking premiums, etc. Once I felt comfortable on the supply side, then I would tender. The last person I would short this year will be the farmer.

Others thoughts

[TOM4CWB]

Charlie,

With the new high throughput terminals, and trucking of grain for hundreds of miles, paricularily westward, hasn't most of the blending that is being done, being done at the primary terminal level?

I see Cargill unloading and cleaning cars from allover Alberta at their terminals, and the other grain companies doing the same with trucks...

So, just exactly how much blending benefit is left at the terminal position???

If the grain handlers have really good quality, don't they divert it to the US or domestically to their own mills, before giving it away to the CWB?

[chaffmeister]

I tend to agree with Charlie – the grain companies will likey make sure they’ve got access to the grain before getting excited about tendering aggressively.

Concerning Tom’s comments about blending – last year the CWB became quite concerned about the quality of grain coming into the terminals in Vancouver and they blamed the reach of the high throughput inland terminals. Historically, with wheat shipped from many small locations, the quality as it came into the terminals was quite variable. For example, the CWB was able to segregate high and low end 2CWRS and provide, not just 2CWRS, but various “levels” of 2CWRS including what might be called some high end 2CWRS – basically your “really good” 2CWRS. But now with the high throughputs drawing from a much larger area, the grain companies are able to ship a more consistent quality, most of which now is a basic 2CWRS – no more high-end 2CWRS is hitting the port. This apparently has created problems with the CWB program, as they can no longer provide the really good stuff to some customers. (I have no idea whether they got a better price for it or not.)

[charliep]

The blending question is why I am keeping this thread alive. My assumption is that the market is moving from selling basis grades to selling basis quality characturistics. To make this system work, grain companies have to be able to draw from the farm bin based on what is needed (this is particularly the case with high through put elevators where the catchment area is larger). The tendering process to date has been done to capture handle.

To achieve better segregation of quality, there has to be a system of rewards that provide incentive to move specified quality product from the farm bin to the customer. First the customer has to be willing to pay for this and second everyone up and down the value chain has to be rewarded for performance (particularly if there is extra work or risk involved).