Agriweek Sep. 30 Backgrounder
The Canadian Wheat Board is in the same position as an ex-dictator of some half-assed country who has been deposed but not shot and is now trying to make his living running a dry cleaning shop, while still wearing his bemedalled uniform.
The scheme offering equity in some vapor corporation to farmers who patronize it in 2013-14 is too transparent for words. The Board has two problems. First, like the dictator, it is reaping what it sowed. It is off the radar of most farmers because they remember how it bullied and abused them while they were forced to give it their grain. It is still the same ol’ Wheat Board to them. Second, it has no capacity at present to add value in the grain chain. Its customer list might as well be the first five pages of the Winnipeg phone book. It has no leverage either in buying grain or selling it. It has truly gone from the national dictator to the back-street dry-cleaner. Big-time international grain traders are selling rings around it to the same customers and with the same Canadian grain that the Board just 15 months ago had the power to expropriate for compensation that it unilaterally determined.
The Board does not have the resources or stature and especially not the management horsepower to pull off the metamorphosis from has-been monopoly to a viable, competitive grain company. Even if it did, the most it could hope for would be to become a bit player in a still-consolidating and highly competitive sector where economics of scale are paramount. There is still a place for small local grain firms, but there is no place for a small prairie-wide grain company.
Any owner of the land, buildings, equipment and reputation that comprise a small grain firm would have to be crazy to exchange them for an entry in a Wheat Board computer. Many small companies, including producer-built terminals, have sold out and more will do so in the future. But they sold for cash. The same is true of the dozens of small agribusiness retailers who sold to major companies. Some small grain and other agribusiness operations have amalgamated, but the owners were either paid out or remained in the business with management authority.
The proposition to farmers will remind many of what happened to their (or their parents’) membership and patronage equity in the old wheat pools, all of which failed a generation ago. Shares of the original Saskatchewan Wheat Pool traded as high as $27 and ended at $0. The only shareholders who made money were those who tendered Viterra shares to Glencore. The supposed Wheat Board equity interest would be cost-free only if the Board could reliably pay prices for grain at least $5 a tonne higher than the private trade. Otherwise farmers will be foregoing a better current income for some future, unknown and unquantifiable benefit. Although there is no possibility of an exact comparison, the Board’s 2012-13 prices appear to have been at least $5 to $15 less than a farmer could have obtained by even casually shopping around for non-Board bids. Farmers who fall for the equity story might be paying $10 or $15 for a face value of $5 and a probable true value of nothing.
If it is perceived that Wheat Board equity actually may have a value, there will be fury from supporters of the old monopoly Board and all other farmers who, under legal duress, delivered their grain to the Board for their entire farming lives. They now get no consideration or preference. In the Board’s scheme they do not exist.
In its 2011-12 annual report the Board listed the value of property, plant and equipment (tangible assets) at $68 million and unspecified intangible assets of $83 million. (Annual reports before 2011-12 have disappeared from its web site). In reality its hard assets are 3,300 obsolete rail cars, a practically valueless Winnipeg office building and two laker ships ordered in early 2011 while it was still run by king-of-the-hill farmer-elected directors. The ships are not yet delivered, neither are they paid for. Their cost was $65 million, of which an unspecified down payment was made with the order. With the 90% shrinkage in its volume prospective equity holders should know its plan is going forward. In all, the Board’s usable assets might be worth $25 to $30 million.
For Wheat Board equity to have a value, it would have to have a performance history and a sound balance sheet. If it had those, it could conceivably raise capital in the financial markets. Even in its present shrivelled state the Board still does, but only because there are unconditional guarantees of its debt by the federal government, which will be withdrawn within three years. The Board is a start-up. Nothing in its history as a government agency with vast economic and regulatory power means anything now.
The Canadian Wheat Board is in the same position as an ex-dictator of some half-assed country who has been deposed but not shot and is now trying to make his living running a dry cleaning shop, while still wearing his bemedalled uniform.
The scheme offering equity in some vapor corporation to farmers who patronize it in 2013-14 is too transparent for words. The Board has two problems. First, like the dictator, it is reaping what it sowed. It is off the radar of most farmers because they remember how it bullied and abused them while they were forced to give it their grain. It is still the same ol’ Wheat Board to them. Second, it has no capacity at present to add value in the grain chain. Its customer list might as well be the first five pages of the Winnipeg phone book. It has no leverage either in buying grain or selling it. It has truly gone from the national dictator to the back-street dry-cleaner. Big-time international grain traders are selling rings around it to the same customers and with the same Canadian grain that the Board just 15 months ago had the power to expropriate for compensation that it unilaterally determined.
The Board does not have the resources or stature and especially not the management horsepower to pull off the metamorphosis from has-been monopoly to a viable, competitive grain company. Even if it did, the most it could hope for would be to become a bit player in a still-consolidating and highly competitive sector where economics of scale are paramount. There is still a place for small local grain firms, but there is no place for a small prairie-wide grain company.
Any owner of the land, buildings, equipment and reputation that comprise a small grain firm would have to be crazy to exchange them for an entry in a Wheat Board computer. Many small companies, including producer-built terminals, have sold out and more will do so in the future. But they sold for cash. The same is true of the dozens of small agribusiness retailers who sold to major companies. Some small grain and other agribusiness operations have amalgamated, but the owners were either paid out or remained in the business with management authority.
The proposition to farmers will remind many of what happened to their (or their parents’) membership and patronage equity in the old wheat pools, all of which failed a generation ago. Shares of the original Saskatchewan Wheat Pool traded as high as $27 and ended at $0. The only shareholders who made money were those who tendered Viterra shares to Glencore. The supposed Wheat Board equity interest would be cost-free only if the Board could reliably pay prices for grain at least $5 a tonne higher than the private trade. Otherwise farmers will be foregoing a better current income for some future, unknown and unquantifiable benefit. Although there is no possibility of an exact comparison, the Board’s 2012-13 prices appear to have been at least $5 to $15 less than a farmer could have obtained by even casually shopping around for non-Board bids. Farmers who fall for the equity story might be paying $10 or $15 for a face value of $5 and a probable true value of nothing.
If it is perceived that Wheat Board equity actually may have a value, there will be fury from supporters of the old monopoly Board and all other farmers who, under legal duress, delivered their grain to the Board for their entire farming lives. They now get no consideration or preference. In the Board’s scheme they do not exist.
In its 2011-12 annual report the Board listed the value of property, plant and equipment (tangible assets) at $68 million and unspecified intangible assets of $83 million. (Annual reports before 2011-12 have disappeared from its web site). In reality its hard assets are 3,300 obsolete rail cars, a practically valueless Winnipeg office building and two laker ships ordered in early 2011 while it was still run by king-of-the-hill farmer-elected directors. The ships are not yet delivered, neither are they paid for. Their cost was $65 million, of which an unspecified down payment was made with the order. With the 90% shrinkage in its volume prospective equity holders should know its plan is going forward. In all, the Board’s usable assets might be worth $25 to $30 million.
For Wheat Board equity to have a value, it would have to have a performance history and a sound balance sheet. If it had those, it could conceivably raise capital in the financial markets. Even in its present shrivelled state the Board still does, but only because there are unconditional guarantees of its debt by the federal government, which will be withdrawn within three years. The Board is a start-up. Nothing in its history as a government agency with vast economic and regulatory power means anything now.