CWB feed barley purchases

[Zaphod]

Comments?

WINNIPEG, Manitoba, Sept 20 (Reuters) - The Canadian Wheat Board is looking at buying feed barley from the cash market as an alternative to its traditional sourcing method as it works to sell into red-hot export markets, a senior official said Thursday.
Gord Flaten, the CWB's vice-president of marketing, declined to comment directly on whether the CWB has been soliciting offers of feed barley from grain companies, but said cash buying is a tool it can use.
"We're going to look at all our options to originate barley," Flaten said in an interview. "I think we're interested in whatever makes sense, either buying cash or originating through the pool."
It's unusual but not unprecedented for the CWB to buy cash grain, Flaten said, adding the agency will consult farmers this winter about whether it should use the method more often to fill wheat and barley sales.
The farmer-run Canadian Wheat Board, one of the world's largest grain exporters, has a monopoly on sales of wheat and barley to millers, maltsters and export markets from Canada's main crop-growing region.
For feed barley, farmers have the choice of selling directly to feedlots or grain companies for a cash price, or contracting with the CWB for a pooled price, which is a share of all sales made within a specified time period.
For pooled sales, the CWB calls for farmer deliveries into the handling system when required to fill exports, but has not yet done so for the 2007/08 crop year, which began Aug. 1.
Feed barley sales have been complicated this year by a failed push by the Canadian government to end the barley monopoly by regulation, which was subsequently overturned on July 31 in a court challenge by the CWB and others.
The government is appealing the decision.
In the weeks leading up to Aug. 1, when the barley monopoly had been slated to end, Canadian grain companies sold more than 800,000 tonnes of barley, according to trade estimates, mainly to Middle Eastern buyers for October-November shipment.
The CWB is facilitating those sales, for which grain companies are buying feed barley directly from farmers.
"The biggest reason for not having any significant deliveries through the pool yet is we're getting this other business done," said Flaten.
The CWB expects strong world demand for feed barley continuing beyond November, Flaten said, as the world grapples with shrinking supplies from Europe and Australia.
"We've been active in that feed market and expect to continue to be, as long as it makes sense to export relative to domestic values," Flaten said, declining comment on volumes.
December barley futures <ABZ7> at the Winnipeg Commodity Exchange have climbed more than 25 percent since Aug. 2, touching a record high of C$203.80 ($203.43) per tonne, basis interior Saskatchewan.
Trade estimates of current spot prices in Saudi Arabia, the world's largest feed barley buyer, are around $430 per tonne, cost and freight included, Flaten said.
Last month, the CWB told farmers it expected the pooled return for feed barley sales made in the early part of the marketing year to be C$217 per tonne, basis export position.
The CWB will update its pool return outlook on Sept. 27.

[charliep]

Interesting. Makes the issues around malt barley even more interesting.

Feed barley. 800,000 tonnes of barley done in a potential open market. These prices at lower than current levels but will be filled given the grain companies have delivery contracts with farmers. Additional export business done at higher values with the farmer getting the signal directly.

Malt barley. 700,000 tonne done this spring at values lower than current levels. Some things like production contracts/some with price guarantees with the maltsters but no real firm contracts (at least has the wiggle room of selection/rejection). New business would be at extremely high levels that would put feed barley to shame but no innovative/creative way to do this (no effective cash pricing tools).

Livestock/wheat. Ugly cost of gain relative to the US. Corn imports or feeder exports? Lots of wheat of all classes/grades fed domestically (similar to 2006/07).

[charliep]

Off topic but things that will make things interesting for the CWB.

1) Re-establishing single desk for barley will be something akin to putting a rattle snake back in a cage.

2) Significant amounts of 2006/07 crop carried forward and priced into new crop. Prices are at lower than current levels as indicated by the fpc adjustment factors.

3) An extremely high percentage of new sales will use producer pricing options. Farmers have signed have contracted as much CWB crops so far in the 2007/08 crop year as they did in the entire 2006/07 one. A year of small pool size (small crop) so the percentage of the producer pricing options versus overall pool will be high. Will test the CWB's risk management strategy to the nth degree.

4) Question of delivery patterns. Good deliveries off the combine followed by low deliveries during the winter. How much crop carried into next summer (based on farmer contracting decisions)? New crop outlook/actual prices?

[craig]

Interesting that competition in the market place seems to be forcing the CWB hand. The board needs higher priced feed barley sales to bring up the values in the pool accounts. I would suggest that they will be lucky to access their supplies. I continue to believe that producers are heavy forward sold on feed barley and that disappointing yields in the main barley producing areas will mean that most of a producers will be pressed to meet their committments. Looked at buying out of a barley contract and the cost was $.40 a bushel more than the price spread. Our local elevator was short supplies to meet the requirements for filling a unit train. That probably speaks more to the weather. Looking like swathed barley may be a struggle to get dry.

[charliep]

My supply demand (perhaps with an optimistic production number) shows a carryover at the end of 2007/08 of 1.5 MMT. To put things in context, 3 MMT barley carryover is burdensome (other things equal), 2 to 2.5 MMT is normal and 1.5 MMT is tight (normally price premiums to other feed markets. Barley producers will be in the drivers seat and be able to pick and chose sales opportunities. Doesn't mean to get to greedy ($3.50 to $4/bu is a good price) but it does mean farmers will have choice of customers/buyers will have to compete for business.

[charliep]

WCE western barley futures like the announcement. Limit up in most contracts (at least so far).

Will add some competition into domestic feed markets. Basis levels are what I would call poor at best with Lethbridge cash equal to October futures when perhaps should be at least 20 over. Another round of export sales will add this discipline into the market.

Will have to check corn basis but assuming 70 over, that would put landed Lethbridge corn prices at USD $4.40 to $4.50/bu or about $180/tonne track. Adding some trucking costs in gets delivered southern Alberta feedlot US corn prices about $190/tonne - equal to southern Alberta barley prices.

[chaffmeister]

Craig - interesting point about the CWB needing higher priced sales for the pool account.

As I understand it, the stuff that was sold by the trade (the 600-800 thousand tonnes) is being treated like non-CWB. I'm told the CWB is "facilitating" the trade but the barley doesn't go through the pool accounts. I heard the CWB gets about $4/tonne for "facilitating" - $2.4 to $3.2 million. Nice work if you can get it.

So I'm thinking the CWB has no (or very limited) feed barley sales on the books. But I'm guessing. Pool A may end up being one cargo to Japan - something they can supply with inventory carried in from last year / pool account.

So...does the CWB need higher pool prices? With no sales in the pool, they could just raise the PRO to reflect current prices instead of going to the cash market.

Also think of this - if they start buying in the cash market at spot values, doesn't that just make it that much more difficult to fulfill the pool at pool prices?

Conclusion: Feed Barley Pool A will be a non-event.


I'm thinking there's much more to this.

I think that the CWB is snookered on malt barley. They've made some serious sales commitments (some early at low prices, remember) and could have serious trouble meeting their commitments. I'm going to guess they're over 1 million in sales but only 500,000 - 600,000 tonnes has been selected to date. That means the rest is still out there - likely still on the ground. And not necessarily malt quality.

The only way they can raise the malt PRO is if they have - or expect - enough high priced sales to overcome the lower early sales. And since they're oversold already, they probably don't want to take the risk of selling any more - even at the current very high prices.

And so the PRO remains the same - for now. The malt PRO may prove be too high even as it is right now.

Put this together with the fact that the CWB likes to maintain a "malt premium" - over the CWB feed barley price. If they raise the feed PRO to attract feed barley, the malt PRO will not seem as attractive - they would risk taking good malt barley away from the malt pool - something they dearly cannot afford to do right now.


I wouldn't be surprised if the strategy is to buy "feed" barley in the cash markets, and when it comes in, take the really good stuff and apply it to the malt program.

Remember, they have about $3million from the trade to "play" with plus about the same amount again from interest revenue coming into the feed barley pool accounts this year.

For feed barley, they could pay malt PRO type prices - plus a bit more - and they may be able to get some malt pool relief without having to monkey with the PRO.

Note to Borg: Still think pooling works?

[charliep]

chaffmeister

I spend time looking at both the CWB fixed price contract and early payment with a view of how the CWB views risk. Both malt and feed barley have significant adjustment factors. Using EPO products for barley is the equivalent of taking twenty dollar bills to a burning barrel and throwing a match in.

Having said that, the current fixed price offering for feed barley "A" pool ($223/tonne port or about $175/tonne Alberta elevator) is very competitive local feed prices central/northern regions. A true market signal from international feed barley prices would have both these bids at least $10 to $20/tonne higher than current levels.

[charliep]

Just doing my Friday afternoon phone around and find I am slightly out of date on barley prices. Heard the price of $4.50/bu Edmonton ($205 ish/tonne). doing the reality check on what my prices.

[craig]

Chaffmeister
Good comments. I expect the whining to start by the board and it's supporters if the board prices come in low. I would suggest that mother nature has thrown a major wrench into the boards plans. Poor yields, light weight barley, high protein and lots of barley in the swath getting rained on in the north mean that malt barley supplies are even tighter and unpriced barley supplies are shrinking. Interesting to see how this plays out.

[crusher]

Charlie,

I'm from Edmonton, I'd like $4.50. Can you point me in the right direction?

[Burbert]

Oh boy, oh boy, oh boy, great to be a Western Comedian Framer these days ain't it. And just think, this is all cause the rebels on Angriville and their dinosaur PC minions have created a turly open market fer barley beans and are tretening wholesale revolting behaviour! Jus think what we kin do, when we begin to create cornfusion cause we grow only the best and most of the barley beans available to Comedian consumerrrrs!!!! Our loon is today soaring with the eagle , Wow, go Angriville, gooo!!!

[Burbert]

Pioneer Grain at Olds had spot feed price of $4.61 on thursday for shippment Jan/Feb
Missed out on this as I was traveling back from Saskatoon that day.
This was done by Pioneer merchants and not by the barley merchants at the CWB. Yet Pioneer must have to pay tookage to the CWB for the sale natrually.
Have got some target masters in as indications are they know they can get the barley, so will be trying to make more sales.
Erik

[charliep]

Actually can't except what people tell me. Sounds like not wide spread so just checking to see what others are hearing.

You can do the math as well. The $430/tonne mentioned in the article is real. Lets assume $100/tonne ocean freight. That puts the price at $330 at west coast port. Assuming $50 CWB/open market deductions and and additional $15/tonne for fobbing (loading a vessel), that puts the local based price at $265/tonne or $5.75/bu.

You can work back a more conservative number for the Portland prices the CWB provides the media (see page 8 of Sept. 20 edition western producer). The same deductions put the Alberta price at $210 to $215/tonne or $4.50/bu.

[charliep]

Thanks for confirming erik. Nice to talk about a market opportunity versus politics.