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    Security on grain sales...

    "Move toward payment security plan good for producers

    Kevin Hursh, Special to The StarPhoenix
    Published: Wednesday, July 23, 2008

    In this new world of extreme volatility in grain prices, there will be casualties. We've seen grain buyers go out of business before and it will happen again. Producers need protection for this kind of event.
    Take, for example, a crop like red lentils. Contract prices as high as 46 cents a pound have been available for the crop currently growing. In the fall that contracted production will be leaving farms with each super B load worth about $40,000.
    What if a buyer is unable to pay?

    The scenario could involve canola, field peas, canaryseed or even feed barley. Buyers face a great deal of risk. While most are solid financially, others are not. Rapid moves in the market can wipe out a lot of equity in a hurry for any company that isn't careful.

    A number of organizations representing producers, processors and exporters are organizing a study on the topic of producer payment security. This is in response to Bill C-39, through which the federal government is proposing to eliminate the mandatory licensing and bonding requirement for grain buyers.

    The current requirements are administered by the Canadian Grain Commission. However, there hasn't always been enough protection to pay producers all they're owned for their grain when a buyer has gone out of business. As well, the bonding requirement is criticized as being expensive for buyers -- an expense that is ultimately borne by producers.
    Bill C-39 did not pass before Parliament adjourned for the summer. That has given farm organizations a bit more time to find a replacement.
    The groups involved in the study include the three general farm organizations from the Prairies -- Keystone Agricultural Producers of Manitoba, the Agricultural Producers Association of Saskatchewan and Wild Rose Agricultural Producers from Alberta. The Canadian Federation of Agriculture is also involved.
    The Saskatchewan, Alberta and Manitoba Pulse Growers are part of the group. So is the Canadian Special Crops Association, which represents growers, processors and exporters.
    There have been efforts in the past to find ways to protect producers. For instance, the Western Barley Growers Association has been promoting a clearinghouse concept as a replacement.
    Under that plan, a private, independent entity would guarantee the financial, delivery and timing obligations of contracts. Both buyers and sellers would pay a fee for the services of the clearinghouse.
    In addition to the clearinghouse model, the new study will examine security-based mechanisms, insurance-based mechanisms and fund-based mechanisms. The organizations will be working with a consulting company to evaluate the range of available options.
    A funding application is pending. The groups say that once dollars have been secured, there will be avenues for producers and the grain trade to have input into the process.
    In recent years, there haven't been as many high-profile financial failures of grain buyers, but there have been some messy cases during the past couple decades. In a few cases, companies were buying crops without proper security in place. In other cases, their bond wasn't large enough to cover all the producer losses.

    Some will say a protection system isn't needed -- that producers should just deal with financially stable and reputable buyers. However, there are scores of buyers and it's impossible to know what's going on with each of them. In the interests of price discovery and competition, it's great to have many companies competing for all the various crops.
    As producers we tend to want protection, but we aren't very keen about paying for it. Like most things in life, there's no free lunch. There's going to be a price tag no matter what system is developed.
    There are many things a producer cannot control, but there are ways that payment security can be assured. Examining those options makes a lot of sense.
    Kevin Hursh is a consulting agrologist and farmer based in Saskatoon. He can be reached at kevin@hursh.ca"

    Does Bill C-39 really 'Put Farmers First'?

    #2
    Interesting discussion.

    I occassionally get a copy of Callum Downs Commodity News emailed me and this week there is an article on Clear Holdings, an Australian Company that has been set up - a web based warehousing, grain brokering and inventory financing service for growers who warehouse their grain in any of the major Austalian storage and handling providers.

    http://www.clearholdings.com.au

    Wasn't aware of what Australia was doing until I saw this. Are others aware/studied this? Thoughts?

    Comment


      #3
      From his newsletter:

      "A new company has been formed to set up a web based warehousing, grain broking and inventory financing
      service for growers who warehouse their grain in any of the major storage and handling providers.
      The tagline is “Clear”.

      Clear Holdings is a company based
      in Melbourne, headed up by a Managing Director who has 15 years as a senior executive of financial giant MLC, by
      the name of Grant Thomas, and yes, it is the same Grant Thomas who was coach of St Kilda football club.

      The guts of the system has been designed by Bob McKay, formerly a General Manager of AWB involved in trading operations both domestically and for the export market, as well as running Grower Services. More recently he has built the grain broking company Agfarm into a sizeable business.

      They have brought in IT experts to do the “real” work on the system, including Martin Howell who is the co-founder and architect of realestate.com.au. He specialises in web based systems.

      Check out the company at their website,
      www.clearholdings.com.au."

      UNQUOTE

      fyi
      Parsley

      Comment


        #4
        Interesting website Charlie. Thanks for posting the link. Life is so simple in Australia in respect to all the grain being moved to terminal position with Warehouse Receipts backing the inventory. Makes clearing simple and secure - especially for the bankers.

        Comment


          #5
          Note the WBGA issued a press release in response to the one copied by Tom offering their full support and co-operation to share their findings with the Pulse, Special Crop and Policy groups.

          Western Barley Growers Association
          MEDIA RELEASE - immediate release - July 23, 2008

          Barley Growers Directors “Endorse” efforts to look at all options for Producer Payment Security
          The Western Barley Growers Association (WBGA) endorses the efforts of organizations representing Western Canadian farmers, processor’s, and exporters who have proposed working together to look at options for producer payment protection in light of proposed changes to the Canada Grain Act.
          In response to the press release of July 21st from the Agricultural Producers Association of Saskatchewan (APAS), the WBGA board of directors endorsed a policy to collaborate where appropriate with these organizations in their evaluation of options. Identified as a possible option in the APAS press release were “clearinghouse models”. Considerable effort has already been expended by the WBGA with financial and technical support from the Private Sector Risk Management Partnerships (PSRMP) program in the evaluation of a clearinghouse option for producer security. The evaluation of the clearinghouse option, and the related information generated by the WBGA, will be available to the organizations, if requested. The WBGA believes that a clearinghouse option has considerable merit. Market research demonstrated 70 % of farmers supported clearing and would clear a portion of their spot and forward sales. However, the WBGA recognizes that there may be other options that are complimentary and together offer the industry a comprehensive set of tools.
          “The objective is to create tools for contractual and settlement security that the industry can endorse and get behind while offering the broadest and most efficient industry security”, stated Jeff Nielsen, president of the WBGA.

          For more information, please contact:

          Doug McBain – Past President
          Western Barley Growers Association
          Phone: 403-816-0645

          Comment

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