Ontario Millers' Association says a dual system is dysfunctional because the price of wheat goes up!

[AdamSmith]

Yes, the Ontario Flour Millers' Association is telling western farmers not to adopt a dual system because the price will go up.

In the June 20, 2002 edition of the Western Producer Howard Rowley, chair of the Ontario Flour Millers' Association is quoted as saying, " The dual system is dysfunctional". "Millers are having a difficult time accessing grain. If we go through the board, we pay them, but then have to find the grain through brokers or directly to farmers. When brokers know you are looking for grain, stocks suddenly become tight and the price goes up"

Again I repeat, THE PRICE WILL GO UP.

I think Mr. Rowley must explain his point further to us dim witted twits out here in the hinterland, as I was always under the impression that a rising price for wheat would be benificial to farmers. But it seems the Ontario Flour Millers'Association thinks otherwise.

[charliep]

1) Why don't Canadian flour mills seek out more direct relationships with farmers? Alberta maltsters are currently doing about 50 % of their sourcing using direct programs (through the CWB pricing system of course)? I often wonder why their are not more variety/quality programs offered by domestic flour mills.

2) How much of their reluctance is based on the fact that the CWB price differentiates their offering to domestic flour mills based on final customer? Wheat sold for flour destined for the North American market is priced off North American prices. Flour sold to Africa/South America in competition with European or Aussie wheat is priced off these respective markets. A flour mills basic way of making money (assuming similar efficiency) is margin/t and through put. The current system allows them to do that in a relatively safe and risk managed environment.

[AdamSmith]

Charlie, reason and logic will not yield the right answer when your confronted with a system that is NOT based on logical and resonable theories. The wheat and barley system in MB,SK and AB is based on two things only. FEAR and LIES.

The LIES can been seen in this latest attempt by the CWB and the Ontario millers to explain why the Ontario system doesn't work.

They're both saying that a dual system is dysfunctional.

The millers say it is dysfunctional for them because they can no longer do one stop shopping with a supplier who is all to willing to settle for a price which is less than what the marketplace will ask for. They're greivance with the dual system is that the marketplace (farmers,brokers, competitors etc.)tries and often succeeds, as it would appear, to capture the highest price available at that time. They obviously don't have that problem with a single desk system.

The CWB says, and here is the lie, that the dual system is dysfunctional because farmers are recieving a lower price.

Here's the relevant portion of a June 12 CWB news release;

In addition, the report makes reference to grain producers in Ontario and Quebec ‘enjoying increasing flexibility’ in the marketing of their wheat and barley. "Those producers are also ‘enjoying’ lower prices, and the Ontario milling industry finds the dual marketing system in Ontario so dysfunctional that it has asked for the complete removal of the marketing powers of the Ontario Wheat Producers’ Marketing Board," Ritter explained. "In the meantime, the wheat and barley processing industry in Western Canada is stable and growing and farmers are receiving premium prices from this market.

They're both talking about the same situation but the millers say it causes the price to go "UP" and the CWB says the price goes "DOWN".

The truth is "BLACK" the CWB says "WHITE"

This is just the most recent, and dare I say open and obvious, CWB lie. But rest assured most of what they claim and say is a lie.

The other fundemental part of the system is FEAR. They use fear in two ways.

1. The CWB tell farmers the CWB can't survive a dual system and tell farmers that only the brokers and multinational grain companies will profit under a free market system. This is the famous CWB fear campaign that we're going to see alot from this summer and fall.

2. The other, and even more sinister, use of FEAR as a tool of the CWB is the FEAR of RETRIBUTION.

An example would be if say a grain company like Cargill were to get involved in the Barley Plebicite that we had a few years back. And lets just suppose they decided to distribute a pamplet supporting the open market option. The CWB would not be to pleased about this and they would want to "teach Cargill a lesson". And lets say Cargill had some business pending to load a couple of boats of wheat in Baie-Comeau and those boats which were booked to arive, never did. A little while later word would get back to Cargill that those boats would have arrived had Cargill not got involed in the barley vote.

That is an example of how the fear of retribution might be implimented.

So to wrap up my point Charlie, what you suggest is reasonable and logical but sadly that's foreign language to our current system.

[TOM4CWB]

Adamsmith,

It is amazing that the Western Producer editorial staff was all taken in on this issue as well, they didn't get it either!

At any time Ontario millers can import US wheat, of whatever quality they need, at world prices.

Yet when the dual marketing system in Ontario extracts more than what the OWPMB (Ont. Board) used to be able to sell it for, then the millers squack and complain.

The Ont. Board can get more for the wheat than they did before, because the threat of export through the exemption system around the monopoly means the millers can't bluff, they must pay fair market value.

Farmers in Ontario are the big winners, and the millers must pay fair market value.

Yet why doesn't anyone in western Canada put these two facts together, in the traditional farm media?

Only in Canada you say!!!

[TOM4CWB]

Note that Rowley mentions that when they price the product with the OWPM Board, they have to go to the brokers to get the grain they've already priced. It is the middleman squeeze that he is referring to that pushes up the price, and it is not reflected in an increase in cash pricing back to the farmer. It's the fact that the OWPMB has no facilities, so sourcing the grain is left to the grain merchants.

[chaffmeister]

There’s something that doesn’t add up here for me:

1. Howard Rowley of the OFMA is quoted as saying, " The dual system is dysfunctional".
2. In the CWB press release responding to the Standing Ag Committee’s Recommendation 14, Ken Ritter comments on the Ontario situation and is quoted as saying "…the Ontario milling industry finds the dual marketing system in Ontario so dysfunctional that it has asked for the complete removal of the marketing powers of the Ontario Wheat Producers’ Marketing Board”.
3. Thalpenny reinforced the comment by Rowley that "Millers are having a difficult time accessing grain. If we go through the board, we pay them, but then have to find the grain through brokers or directly to farmers. When brokers know you are looking for grain, stocks suddenly become tight and the price goes up". Thalpenny concludes, “It is the middleman squeeze that he is referring to that pushes up the price, and it is not reflected in an increase in cash pricing back to the farmer. It's the fact that the OWPMB has no facilities, so sourcing the grain is left to the grain merchants.”

If thalpenny is right and the middleman is squeezing the market, why would the millers say they want the removal of the board? That won’t take away the problem of the grain merchants “squeezing” the market.

Thalpenny suggests that the fact that the OWPMB has no facilities is why the markets get squeezed. Grain is handled through this system whether it is through the board or not. Why isn’t Rowley asking for the removal or regulation of brokers since they are the ones able to cause higher prices to the millers?

Rowley also says, “When brokers know you are looking for grain, stocks suddenly become tight and the price goes up”. But he also says he goes directly to farmers – seems to me that if “brokers” try to extract a premium, farmers feel the effect as well because the miller can go direct and pay the farmer a price competitive with the price the broker is showing the miller.

It appears that Rowley’s complaints are concerning grain they buy through the board – not the grain they would buy on the open market. Why is that?

[chaffmeister]

One more question:
Thalpenny - Where is it documented that the increase in price via brokers does not reflect back to farmers?

It seems to me that competition for farmers' grain may be driving these higher prices. This same competition will not allow one broker to extract a higher price than the others. If the brokers are simply reflecting the price the farmers are demanding before releasing their grain, perhaps the board sold it too cheap in the first place. (After all, this is grain that was priced with the board initially.)

All comments welcomed.

[charliep]

Similar questions to chaffmeister.

1) If costs of sourcing their Ontario Wheat Board supplies are to high, why don't the mills go direct to farmers. A note that API buys both CWB and non board.

2) Where do the mills buy from the Ontario Wheat Board? In store elevator? Track? Delivered flour mill? If their are concerns about/confusion around sourcing product, why not have the Ontario Wheat Board do their sales delivered plant?

[TOM4CWB]

Chaffmiester,

I am really confused now...

Isn't the CWB allowed to sell into our premium domestic market, and don't these millers already do substantial CWB buying?

Sounds to me like these Ontario millers want wheat at less than North American and world price, doesn't it, or why wouldn't the CWB just do the business?

[parsley]

CWB Director Art Macklin was on the Jim Fischer show yesterday and he indicated that the CWB was selling a lot more wheat domestically.

Does that mean Ontario gets the open market prices and the Prairies get the Canadian Government price set by Goodale via the Board ? Similar to the WW II days where Canadian farmers got the Canadian Government set price that was set below world prices.
You can bet the Federal Government wants to keep inflation down and you can bet Ontario farmers will want world prices. That leaves the Designated Area patsies.

Parsley

[TOM4CWB]

Charlie,

The question must be asked, does the CWB sell competeing quality wheat and barley against the OWPMB?

If the CWB did, wouldn't the Ontario millers just refuse to buy Ontario wheat if the terms were not to their satisfaction?

So just what is CWB policy when selling wheat into Ontario/Quebec?

Or is our western quality so poor, the CWB can't sell to the Ontario/Quebec millers cause it doesn't have the proper specs?

Any way a person looks at this situation, isn't something wrong... What is the real story here?

And does this situation have anything to do with maximizing returns for "designated area" wheat producers??? ...

[TOM4CWB]

The point that is missing is that because there is a limit on the amount of wheat eligible for the exemption, the millers essentially have to talk to the OWPMB at some point through the year to get their supplies. So once they book with the OWPMB, that's when they are in a tough spot because they then have to have a grain merchant source it. It's a classic opportunist's dream. The miller has a price (regardless if it's track or where it's negotiated at) and then is forced to pay a sourcing cost.

That's why the millers say, have single desk selling, or have an open market - this dual market system doesn't work.

Regarding tom4cwb's comments, the pricing for eastern mills for CWB grain is based off of Mpls, and add freight basis to the mill location. The mill determines when they wish to book the price. They can forward contract, do basis contracts, or hedge swaps. It's competitive and transparent. There is mostly hard wheats shipped to eastern mills as there is very little hard spring wheat grown in Ont.

Tom

[charliep]

Tom4cwb

Just a note Ont. produces mostly soft wheats whereas western Canada is hard red springs. We also sell a little soft white wheat. For the most part, our wheats are complimentary to what Ont. produces in terms of flour mill needs. Not a lot of malt barley grown in Eastern Canada (may be more over time on potato land in Maritimes).

I still have the question on mechanics of the process. When somebody says something doesn't work, I find it interesting to look at the process and ask if there are things that can be changed/barriers removed. Maybe an even more question (not in a judgement fashion) is to ask why they are saying it.

[TOM4CWB]

thalpenny,

I noticed that you forgot about US wheat coming in to supply the Ontario millers, what about this arbitrage issue?

If the broker and OWPMB don't play fair, why wouldn't the majority of the millers who are linked with multinationals... just bring in the supply from a few miles south, just across the US border?

Logic says Competition is the best arbitrage equalizer, or does the OWPMB defy NAFTA and Canadian law, resticting imports of wheat into Ontario and Quebec mills?

[AdamSmith]

Hi all;

Charlie it really is tough to ask questions without judgment unless of course one has no opinion on the subject which is the cause of a question!

Since I do have certain opinions,I will ask a question and then offer up a possible answer.

1. Why do the millers take the position that they want either single desk or total deregulation?

My theory is that the dual system as constucted in Ontario still doesn't give them the ability to manage their needed supplies. As thalpenny says there is a limited exemption in Ontario and that limited exemption is insufficient for them to build a sourcing program that is reliable enough for them.

I wonder what their opinion is, of a system which has no limitations on the amount exempted?

In essense a free market system in which the OWPMB and the CWB are not excluded from participating in, but there would be no minimum requirement of volumes from them. They would only market what they have contracted from farmers.

Would that type of system apease the millers?

Or do they want the OWPMB and the CWB shut down compleatly?

Back to your point about the limited exemption thalpenny, obviously the OWPMB is having trouble getting farmers to commit to them the remaining non exempted grain. It's either that or the OWPMB is making sales commitments without knowing how much wheat they actually have available to them to market? Why else does the OWPMB have to go through the brokers?

It appears to me that if the Ontario system is dysfunctional, it is only because the OWPMB is not responding quick enough to the changing dynamics of the Ontario marketplace and have not freed things up enough.

If there are other factors at play I would like to know what they are. It's just not good enough to say the system is dysfunctional because we have to pay a higher price and leave it at that.

Who else agrees that the millers need to explain their position better and the rational behind that position.

AdamSmith