Comments in Old Crop Barley PRO Commentary

[charliep]

Could someone help me understand this statement taken for the old crop feed barley commentary.

"Interest earnings to the 2001-02 feed barley pool comprise a significant
portion of the current PRO value."

How can a small pool like feed barley accumulate a lot of interest payments (particularly when interest rates are 3 to 4 %)? Was interest from the wheat and malt barley pools slipped into the feed barley pool?

[TOM4CWB]

Charlie,

As we discussed on other topics earlier this year, (Rodbradshaw asked the same question) the interest income is from previous barley sales that are in essence bad debts that have not been written off yet.

The former Soviet Union countries owe millions upon millions, and the CWB borrows at preferred government of Canada rates, the lends to these countries at commercial rates keeping the interest spread.

Now when such a small amount of feed barley, for example just say 100,000t for the 2001-02 crop year, has CWB churning interest earnings of say 5 million dollars, then the interest portion contribution to the pooling accout would be $50/t.

This is an example, but if you look at interest earnings in last years feed barley pool, you will see they are significant... and the CWB has a duty to attribute interest earnings from past pools that sold feed barley, to return it to the present feed barley pool.

There is some talk the CWB will divert some of this cash to the feed barley contingency fund, maybe thalpenny would like to speak to this issue...

Does this help Charlie?

[charliep]

Still confused. Is the FSU still making payments on these loans? Haven't these loans be transferred to the federal government and all monies flowing to taxpayers? It seems funny to me to be adding in money to the pool on debts that have effectly been written off at the tax payers expense.

[TOM4CWB]

Charlie,

It does seem wrong, to add bad debt to bad debt, as the CWB churning income creating has done, hence the reason for Director Jim Chatenay and his crew asking all the hard questions... like if the CWB makes millions on this debt, how much are the brokers doing all the churning for the CWB making... and is this an ethical practice to begin with...

I believe the CWB's stand is that the Canadian Gov. allows this churning... so it is a proper way to create income to add to the pooling accounts...

Thalpenny, could add to this if he would like?

Charlie, Brenda B. can fill you in more if you want a third opinion...

[chaffmeister]

Tom's got it right as I understand it. I asked the question two years ago when the barley pool had a $5 final after $17 interest earnings were included. It alarmed me because it appeared that without the interest earnings the barley pool would have been deficit that year - it looked like the CWB was playing games with interest earnings to avoid a deficit. When I asked, the CWB told me that the fed govt is paying the interest on outstanding credit sales to the CWB and the CWB places that revenue into the appropriate pool. The outstanding amount owed each year is about the same, but the barley pool is much smaller than it used to be so the interest component is now quite large on a per tonne basis.

I admit I am not clear on the detailed mechanism concerning who (CWB or fed govt) is carrying the debt. But I have heard that these old debts are starting to get paid back and the CWB is concerned (because they won't have that interest revenue anymore?) Perhaps thalpenny can make a comment about why (or if) the CWB is concerned that these debts are being paid.

Charlie, from the comments with the PRO announcement it sounds like the old crop pool is very small indeed if interest is a large component of the pool.

My beef about this scenario is this: When I asked about the barley pool a couple of years ago and the potential of pool deficit, I was also told that the CWB knew ahead of time roughly how much interest income would be going into the pool, so it was always factored into initial payments and the PRO. In other words, it's not something that gets slapped on at the end.

This tells me that as a pricing signal for farmers the PRO is not to be trusted, especially for barley.

On page 8 of the most recent Grain Matters there is a piece on PROs where the CWB writes:

"The PRO is designed to give you better market signals. Prior to the creation of the PRO, the only seeding decision signal the CWB could give you was the initial payment.

A second reason for creating the PRO was to provide a signal on cash flow expectations. You needed a clearer signal of what future adjustment, interim and final payments would be.

You were also looking for a way of knowing when to take advantage of off-board markets. The PRO gave you the tool to make these decisions."

In my humble opinion the CWB is failing farmers with the PRO - the CWB cannot possibly achieve these stated goals as long as these interest payments skew the PRO.

The CWB is impotent in the export barley market because the pooling concept does not allow it to compete with the much larger domestic feed market - even with this "interest boost". Without the interest revenue, the CWB would have had an even tougher time originating export feed barley over the last 5 to 7 years, perhaps shutting it out altogether.

What happens to the feed barley pool if the CWB originates NO feed barley? (which could happen this year) A quick look at the feed barley pool shows that interest revenue each year is in the neighbourhood of $6 million (in 2000/01, on 454,073 tonnes interest revenue was $6,4 million which works out to $14.11 per tonne. (In 98/99 interest revenue was $22.34 per tonne, on a pool of 277,100 tonnes.)

If the feed barley pool drops to say, 100,000 tonnes (could it even be this large?), interest earnings should be expected to be in the neighbourhood of $60 per tonne; at 50,000 tonnes, that component of the PRO would go to $120 per tonne. You get the idea.

What would the PRO become if the pool was zero? (What would likely happen is the the CWB would need to make a decision about where to put this revenue, which then makes it discretionary. (No component of the PRO or pool payment should be discretionary.) My fear is that the CWB would use this interest revenue to boost the PRO enough to get at least a token amount of barley to avoid the embarassment of not having a feed barley pool at all. Again, this would be discretionary.

Not a good way to run a market signal.

[charliep]

I can't explain so I can only paste.

Directors look to farmers to determine distribution of interest
earnings

Winnipeg - In the coming months, the CWB board of directors will
consult with farmers on how to use excess interest earnings in
the 2001-02 feed barley pool. The board decided to apply approximately
$2.5 million out of a potential $8 million in total interest earnings
to the returns that will go to farmers who delivered feed barley to
the CWB during this crop year. The remaining amount, approximately
$5.5 million, will be placed in a contingency fund.

Net interest earnings relating to feed barley are currently estimated
at $8 million. This revenue is being earned by the CWB on credit
sales of feed barley to offshore customers in the late 1970's and
early 1980's. Across the four pool accounts, total interest earnings
were $75.2 million in 2000-01 and are expected to be about the same
in the current crop year.

"This money is farmers' money and we intend to consult with farmers
on what to do with it," stated Ken Ritter, Chair of the board.
"Some possible uses could include dedicating the money to develop
new varieties with improved agronomics, pursuing additional
research on disease resistance and drought tolerance or pursuing
market development activities that could increase returns to farmers."
Ritter noted that all options would require a change to the
Canadian Wheat Board Act.

Ritter said this situation exists because high domestic feed prices
are limiting deliveries to the CWB. Deliveries to the feed barley
pool in 2001-02 are estimated to be 56 000 tonnes, down from a
four-year average of 416 000 tonnes. Given this situation, the board
decided to assign enough interest earnings to the feed barley pool
to maintain the return at approximately $180 per tonne.

"This value places producers who farm in areas where the CWB
traditionally draws much of the feed barley it sells on a relatively
equal footing with farmers who sold barley on the open domestic market,"
said Ritter. "The value is consistent with the price signal farmers
were given earlier in the year and also ensures the feed and malting
barley markets are not distorted."

Ritter also referred to the Auditor General's special audit of the
CWB. In her February 2002 report, Auditor General Sheila Fraser noted
that assigning net interest earnings to the pool accounts to which
the original credit sale related may result in a significant
variation in the amount of interest earnings allocated to each of
the pool accounts. Ms. Fraser suggested that the CWB should
consider sharing total interest earnings equally among all pool
accounts so that farmers get the same amount of interest earnings
per tonne regardless of the pool account into which they deliver.
The CWB will consider requesting a change to the Canadian Wheat
Board Act to allow for changes in the way interest earnings are
distributed.

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

For more information, please contact:

Ken Ritter
Chair, CWB Board of Directors
Telephone: 306-463-5943
Cell: 306-463-9287

Louise Waldman
Manager, Media Relations
Telephone: 204-983-3101
Cell: 204-227-0623

[charliep]

Just some interesting math on this.

2001/02 PRO - $180/t basis port

Ave. CWB deductions - $42/t

Alberta payments - $138/t or $3/bu.

Average interest payment/t (based on 56,000 t of 2001/2002 and $2.5 mln interest allocation) - $45/t or about $1/bu. (As a note, the interest contribution if they would have used $8 mln in total would have been $143/t.)

Average feed barley revenue from actual sales - $93/t or $2/bu.

[chaffmeister]

Let me try an AdamSmith trick on this press release...my comments are in BOLD...

Directors look to farmers to determine distribution of interest
earnings

Winnipeg - In the coming months, the CWB board of directors will
consult with farmers on how to use excess interest earnings in
the 2001-02 feed barley pool. SO THE INTEREST IS A PROBLEM JUST AS I HAD SAID ABOVE. The board decided to apply approximately $2.5 million out of a potential $8 million in total interest earnings to the returns that will go to farmers who delivered feed barley to
the CWB during this crop year. DECIDED?! SO IT'S DISCRETIONARY! The remaining amount, approximately
$5.5 million, will be placed in a contingency fund.

Net interest earnings relating to feed barley are currently estimated at $8 million. THIS IS UP FROM THE ROUGHLY $6 MILLION IN THE MOST RECENT YEARS I WONDER WHY? This revenue is being earned by the CWB on credit sales of feed barley to offshore customers in the late 1970's and early 1980's. Across the four pool accounts, total interest earnings were $75.2 million in 2000-01 and are expected to be about the same in the current crop year.

"This money is farmers' money and we intend to consult with farmers
on what to do with it," stated Ken Ritter, Chair of the board.
"Some possible uses could include dedicating the money to develop
new varieties with improved agronomics, pursuing additional research on disease resistance and drought tolerance or pursuing market development activities that could increase returns to farmers." Ritter noted that all options would require a change to the
Canadian Wheat Board Act. EXCEPT THE OPTION OF PLACING THE MONEY IN A CONTINGENCY FUND INSTEAD OF IN THE POOL, I GUESS. WHY?

Ritter said this situation exists because high domestic feed prices
are limiting deliveries to the CWB. (AS I SAID ABOVE, THE CWB IS IMPOTENT IN THE FEED BARLEY MARKET.) Deliveries to the feed barley pool in 2001-02 are estimated to be 56,000 tonnes, down from a four-year average of 416,000 tonnes. Given this situation, the board
decided to assign enough interest earnings to the feed barley pool
to maintain the return at approximately $180 per tonne. THIS IS WHAT THE OPEN MARKET WOULD CALL MARKET MANIPULATION. FARMERS SHOULD TAKE NOTE THAT THIS $180 PRO IS TOTALLY ARBITRARY - IT IS NOT A MARKET SIGNAL - IT HAS ABSOLUTELY NOTHING TO DO WITH WHAT OCCURED IN THE FEED BARLEY MARKET AT AT. ADDING $2.5 MILLION INTO A POOL OF 56,000 TONNES EQUALS ABOUT $45.00 PER TONNE. TAKE THIS AWAY FROM THE PRO OF $180 AND YOU GET $135 PER TONNE (AT THE PORT) - THIS IS CLOSER TO THE REAL POOL RETURN FROM SALES.

"This value places producers who farm in areas where the CWB traditionally draws much of the feed barley it sells on a relatively equal footing with farmers who sold barley on the open domestic market," said Ritter. "The value is consistent with the price signal farmers were given earlier in the year and also ensures the feed and malting barley markets are not distorted."

OF COURSE THIS DISTORTS THESE OTHER MARKETS! THIS INTEREST BEING IN THE POOL IN THE FIRST PLACE MAKES IT ARTIFICIAL AND A LOUSY PRICE SIGNAL AND THEREFORE A BLATANT DISTORTION. PLAYING WITH THE INTEREST AMOUNT BEING PLACED IN A PARTICULAR POOL MAKES IT MANIPULATION. THE FACT THAT SOMEONE WITHIN THE CWB BELEIVES THAT THIS IS AN ACCEPTABLE PRACTICE IS ABSOLUTELY SHAMEFUL. (I'M LEFT WONDERING IF THEY DO THEY DO THIS ALL THE TIME - MOVE INTEREST MONEY IN AND/OR OUT OF POOLS? THIS TIME IT'S TALKED ABOUT OPENLY BECAUSE ITS SO BIG A MOVE...)

Ritter also referred to the Auditor General's special audit of the CWB. In her February 2002 report, Auditor general Sheila Fraser noted that assigning net interest earnings to the pool accounts to which the original credit sale related may result in a significant variation in the amount of interest earnings allocated to each of
the pool accounts. Ms. Fraser suggested that the CWB should consider sharing total interest earnings equally among all pool accounts so that farmers get the same amount of interest earnings
per tonne regardless of the pool account into which they deliver. EVEN THIS IS FLAWED - IT WOULD STILL ALLOW THE INTEREST TO CONTRIBUTE TO THE PROS (PAYMENT PER TONNE) BEING SKEWED, MAKING THEM MEANINGLESS AS MARKET SIGNALS. GOD HELP US IF THE AUDITOR GENERAL DIDN'T UNDERSTAND THIS!

The CWB will consider requesting a change to the Canadian Wheat Board Act to allow for changes in the way interest earnings are distributed. BUT THEY ARE ALREADY CHANGING THE DISTRIBUTION BY HOLDING BACK $5.5 MILLION - WITHOUT A CHANGE TO THE ACT. HOW CAN THEY DO THAT?

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

For more information, please contact:

Ken Ritter
Chair, CWB Board of Directors
Telephone: 306-463-5943
Cell: 306-463-9287

Louise Waldman
Manager, Media Relations
Telephone: 204-983-3101
Cell: 204-227-0623

WHY SHOULD FARMERS WHO DELIVERED TO THE CWB THIS YEAR GET THIS PAYMENT? I'M NOT SUGGESTING TAKING ANY MONEY AWAY FROM FARMERS BUT IF THIS IS FROM SALES MADE IN THE LATE 70'S AND EARLEY 80'S SHOULDN'T THIS MONEY GO TO THOSE FARMERS THAT DELIVERED BACK THEN? I'M SURE THERE ARE SOME FARMERS OUT THERE WHO DELIVERED FEED BARLEY TO THE CWB BACK THEN BUT DIDN'T THIS YEAR. THIS IS INTEREST ON THEIR BARLEY SALES - NOT ON THE 56,000 TONNES SOLD THIS YEAR. HOW IS IT EQUITABLE THAT THESE FEW FARMERS GET A $45/TONNE KISS WHILE THE GUYS WHO ACTUALLY SOLD THE BARLEY THAT IS EARNING THAT INTEREST GET NOTHING?

AND WHERE DOES IT SAY THAT THE CWB HAS A MANDATE TO MAKE THE EXPORT BARLEY MARKET "EQUITABLE" WITH THE DOMESTIC MARKET?

WHO IS THE CWB SERVING? WITHHOLDING $5.5 MILLION FROM FARMERS AT A TIME WHEN THEY NEED IT DEARLY, AND PLACING IT IN A CONTINGENCY FUND?! MAKE NO MISTAKE ABOUT IT - THE ONLY REASON THAT THIS MAKES SENSE FROM A CWB BOARD PERSPECTIVE IS THAT PAYING THE WHOLE AMOUNT INTO THE FEED BARLEY POOL THIS YEAR (LIKE THEY HAVE ALL ALONG) WOULD BRING THE WRONG KIND OF ATTENTION. IMAGINE, $8 MILLION ON 56,000 TONNES IS $142.85 PER TONNE - IF THE CWB DID NO MANIPULATION OF THE INTEREST IN THE POOL, THIS IS THE AMOUNT THAT WOULD BE ADDED TO THE POOL. AS MENTIONED ABOVE, THE "REAL" POOL RETURN (WITHOUT INTEREST) IS ABOUT $135. ADD $142.85 TO THIS AND YOU GET A FEED BARLEY PRO OF $278 PER TONNE. WOULDN'T THAT ATTRACT A LOT OF ATTENTION FROM THE US, THE EU, AUSTRALIA, WTO, ETC?

AND WHAT DOES THIS MEAN FOR THE PRICING OPTIONS BASED ON THE PROS?

THIS UPCOMING YEAR I AM GOING TO GET A PERMIT BOOK AND DELIVER ONE TONNE OF FEED BARLEY TO THE CWB. HOPEFULLY I WILL BE THE ONLY ONE DELIVERING FEED BARLEY TO THE CWB AND SO THE POOL WILL BE BASED ON ONLY MY ONE TONNE. BASED ON HOW THE CWB HANDLES INTEREST, I SHOULD GET A CHEQUE FOR AT LEAST $2.5 MILLION FOR MY ONE TONNE OF FEED BARLEY, (MAYBE AS MUCH AS $8 MILLION, WHO KNOWS...)

[Kasro]

Here is news story not likely to appear in the Farmers Independent Weekly or the Western Producer.

Whew, it been a hot day!



CWB ADMITS TO MARKETING SCANDAL

Winnipeg – Chairman Ken Lay of the Canadian Wheat Board was forced to admit today, that the former alleged single desk premiums achieved by the Board in marketing is really just an illusion. Said Chairman Lay, “We are now investigating the flim-flamery that has been exposed in the corporate world, as exemplified by the Enron/Arthur Anderson incident and more recently WorldCom. We are suspicious that a new computer virus, named $pooling.bs.repeat, that has been found in the CWB marketing and accounting department computers is at fault here.” Anonymous sources say the CWB public relations department computers also have the virus. Reportedly, it is actually transferring expenses from the department, and is including them in the Bull Durum Pool as revenues. According to Chairman Lay, the virus may have entered the CWB through an exchange of computer disks with the University of Saskatchewan, who he said have recently been asked to write a program for the CWB to justify previously unsubstantiated claims about the value of the single desk. Just whose desk is being referred to though, Chairman Lay would not say. Sources say it could be the desk of the Minister Responsible for Government Cover-ups, the Honorable Ralph Badbooks. It was reportedly a gift from a Liberal supporter, and has one drawer for concealing any CWB sales contracts that are less than 50 years old, and another one for storing blank government contracts with Quebec ad agencies. People who have peered inside it, say it looks like it may also have a built in document shredder. With all this technology, say CWB appraisers, and because the desk is a single facsimile of the one once used by Lenin, it should be worth more than market value.

Not clear, is just how all this is going affect the nearby CWB elections for directors. It is just possible, that in today’s world of rapid computer assisted data transmission, that the computers used by the Mired In Scores of Money accounting firm, paid for by the CWB to administer the election process also has the virus. Just how many votes would need to be transferred to the incumbent directors from those challenging the illusion, no one would say. However after the elections have been duly influenced to achieve the desired results, the allegations would be buried under tonnes of information from the public relations department said Chairman Lay and election coordinator Pete Slickersly.

Prominent farmer, Tom4CWB, when interviewed by this paper, was left scratching his head over just how all this would affect the pool account in crop year 2003-06. He is particularly concerned with the market distortions the virus has caused. Because of the marketing and risk management expertise developed by Mr. 4CWB, he has a large following of astute managers. He said, “ I really think that this scandal has caused the drought here in Alberta.” “Who knows” he said, “maybe the heat created by all telephone lines burning up all over western Canada as Chairman Lay and his directors try and cover up this scandal has altered the ocean currents, and we are now in a pre- El Nino shadow, causing even the normal clear thinkers over at the Crop Insurance Corporation to loose focus on the risks they are supposed to insure.”

Even AdamSmith, the world-renowned economist, was astounded by the news. “A scandal of this proportion could actually invalidate all my theories,” he is reported to have said. “I may actually have to support the single market concept of a dual desk benefit. After all, if Perfesser Graythinker of the U of S has a plastic model that converts CWB interest revenues to public relations expenses, and from there allocates them to the revenue column in all the pools, deflating the understanding of anything about them, I’ll be a monkey’s uncle.”

In further news, at the end of a long day in the rubber room at the Head Office of the CWB, Chairman Lay could not say just when all this would be explained. “One thing I do know though,” he said, exasperated, “ that now that the corporation has been associated with Enron, Worldcom, Liberals, and is infected with Terminal Grain Beetles, we may not last through the next pool year. I hope this can all be swept under the rug, and won’t diminish my chances to be Prime Minister.” But he added, “all Prime Minister Chretibility did is write himself a cheque for $700,000, transferred over from a fund raiser in Winnipeg which I attended, to cover-up a little bit of $green on a golf course. Since this is a scandal of about ten times the magnitude in dollar terms, though, it may actually help.”

Both Chaffmiester and Charlie Pearson, (no relation of the former Liberal Prime Minister) say they don’t believe the virus story. They have conspired to believe it is really a result of a dis-orientation session conducted in the hallway outside the Board Room of the CWB on director Jim Chutney, the flavourful director from Alberta who has been asking questions about all of this. They think it is just another example of the CWB’s world-renowned ability to expose their shortcomings in marketing ability, combined with their now famous ability to put their foot in their mouth through the public relations department.

No one at the office of the Auditor General could be reached for comment.

[TOM4CWB]

Charlie and Chaffmiester,

I could have saved my barley, instead of delivering it to the CWB pool, and sold it for $4/bu, I am MAD!!!

This is the height of insanity...

I still have some seed barley stocks to deliver to the CWB under contract, how can the CWB break the law, and not pay me for my pooled barley???

Is this just normal, the CWB breaks the law whenever it just suits them??

How can we have any confecence in CWB numbers from PRO's, when they just turn out to be ficticious political manipulations?

When I play the CWB game and deliver to the pool, they still rip me off...

At least they should pay the highest price anyone could have recieved from the open market...