Charlie/Lee...
I see this is the cost estimated for the CWB single desk... in the latest Informa study!
"Executive Summary
The following study has been conducted to address the need for up-to-date and
objective analysis of the potential impact for farmers of an open market for wheat, durum and barley in western Canada.
The approach utilized in this study refrains from a theoretical modeling approach in favour of direct evaluations of price performance and
cost efficiencies by open market and single-desk selling systems. These comparative results are then applied to the Canadian marketplace to assess how farmers’ revenues and costs would be affected.
One of the key claims made in support of a single-desk selling structure is based on the ability to exert market power within a given marketplace. Contrary to the claim that the
CWB holds more than 20 percent of the international market, the analysis shows actual market share of 14.5 percent of the all-wheat trade and 11.0 percent of the global barley
trade. The CWB falls far short of the generally accepted 25% market share threshold needed to exert influence over global prices of wheat and barley.
When key individual importing countries are evaluated, there are few in which the CWB holds sufficient market share to potentially exert market power. Of the 91 countries to
which Canada exported non-durum wheat, only Ecuador potentially exhibited
characteristics suggesting that Canada has sufficient market power to leverage prices. If the criteria are relaxed slightly, four other countries (Colombia, Ghana, Guatemala and
Venezuela) would meet the criteria for the CWB to potentially exert market power.
Canada holds a more dominant position in the global durum market. Among the 41 countries to which Canada exported durum, market influence by Canada could
potentially be exercised in six. The analysis indicates that Canada does not hold sufficient market power in any of the 20 markets to which it has exported barley during the period under examination.
Even though the CWB does not exhibit sufficient “market power” characteristics to extract premiums, Canadian wheat and barley may at times be higher priced in certain
markets. The reasons for these higher prices however, have little, if anything, to do with single-desk selling. Several of the key benefits claimed by the CWB such as quality,
consistency, food safety, customer service and reliability are not dependent on a singledesk selling approach.
In order to evaluate price performance by the CWB relative to an open market
approach, prices for wheat, durum and barley at export markets were determined. For the core export markets, CIF prices achieved for Canadian wheat were occasionally higher than other exporting countries, but not consistently. Further, when these prices were examined based on the classes of wheat exported, the results showed that in almost every importing country, the “premium” paid for Canadian wheat was actually
smaller than the spread that would be available simply due to the class of wheat sold into these markets. The difference between actual CIF prices and class-weighted prices ranged from $6.84 to $21.41 per tonne, representing a premium foregone by the CWB.
When CIF prices for core durum markets were compared, Peru was the only market in which Canadian durum appears to consistently achieve a higher CIF price than other exporters.
The CIF price comparisons also show that Canadian barley achieves the highest returns on occasion but certainly not on a consistent basis. In the quality-conscious
market of Japan, Canadian barley does not achieve a premium price. In most instances, Canadian values for feed and malting barley are lower than the other two exporters, Australia and the US. On average, Japan pays $15.40 per tonne more for Australian
feed barley than from the CWB. For malt barley, the US achieves $29.81 per tonne more than the CWB price.
When evaluating prices received by farmers in the US and in the Canadian prairies, the analysis shows that for hard red spring wheat, US elevator bids have been higher than
final payments from the CWB in five of the last six crop years. The average differencebetween the Canadian and US values shows that Canadian farmers have received $15.97 per tonne less than their American counterparts. The comparison for durum shows similar results. For the crop years of 2001/02 to 2006/07, Canadian farmers
delivering 1CWAD 13.0% have received $12.29 per tonne less than US farmers and 1CWAD 11.5% has been $20.32 per tonne lower.
The malt barley price in the US has outperformed CWB final payments for both two-row and six-row malting barley. In three out of the six most recent crop years analyzed, the
average difference over those six years favours US elevator bids by $5.51 per tonne.
The six-row CWB final payment is lower than the US elevator bid in five of six years, and the average difference is $21.11 per tonne. The feed barley market is the one in which the CWB final payments have performed the best relative to US elevator bids, but
the average difference still favours the US by $2.85 per tonne.
Some observers have pointed out that US elevator bids are not a useful comparison because the wheat, durum and barley markets in the US are limited to domestic consumption only. This statement ignore the fact that the US has exported an average
of 58% of its spring wheat production and 44% of its durum production, indicating that elevator bids in the US are not simply based on domestic use, but also reflect export
markets.
In order to examine the potential system efficiencies of an open market, two comparative measures were employed. The first utilized efficiency data from the
Quorum Corporation which provides an “export basis” for several CWB and non-board crops. The export basis measures the overall logistics cost associated with moving
prairie crops to an export position. The export basis levels for wheat, durum, canola and yellow peas (the crops analyzed by Quorum) have been $55.80 per tonne for CWRS
wheat, $68.64 for durum and $45.37 for canola. This industry-developed measure
clearly indicates that the cost of handling and marketing CWB grains is significantly higher than non-board crops and challenges the notion that the CWB is able to drive efficiencies in the system through its size and clout in the Canadian marketplace.
While the CWB has taken steps to manage administrative costs, increases in this area are another reason for the trend toward higher system costs for CWB grains. Over the
past 20 years, administrative costs have risen by an average of $1.99 million per year or
an average rate of increase of 7.2%, in spite of declines in CWB grains administered.
Administrative costs on a per-tonne basis climbed gradually from $1.29 per tonne in 1987 to the mid-1990’s and then rose rapidly to peak at $4.03 per tonne in 2002/03, partly due to a drought-reduced crop in that year.
The second efficiency measure compared system costs in the US and Canada and
indicated that the total non-freight cost of moving wheat from southeast Saskatchewan to Vancouver has been $9.95 per tonne higher than the cost of moving wheat from North Dakota to the Pacific Northwest. This difference is a valid estimate of the greater
efficiency that could be obtained from an open market environment and corroborates the findings based on the Quorum data.
Over the most recent six crop years, the interest farmers could earn by selling in the open market in the US exceeds the interest earned from CWB payments, due to the full
value of grain paid earlier in the year. The gain from open market sales of spring wheat is an average of $3.08 per tonne, while the average gain for durum sales is $3.98 per tonne.
While it is difficult to forecast how an open market would affect western Canadian wheat acreage, the experience in other regions of Canada and the world would suggest that at
the least, wheat area would stabilize if not increase slightly. Wheat acreage in western Canada has dropped more sharply than in eastern Canada and has declined more rapidly than any other major wheat exporter. To quantify the enhanced gross revenue that would result from an open market for wheat, durum and barley, the estimated price differentials and costs of the CWB single desk were applied to volumes of the applicable crops. These estimates show significant
savings could be achieved by farmers by moving to an open market, from a low of $13.72 per tonne for feed barley to a high of $47.57 per tonne for durum. Based on the most recent five year average of grain delivered into the CWB pool accounts, revenue
gains from an open market system would total $450 million to $628 million per year.
These savings estimates are based on those aspects which can be quantified, while items such as inefficiencies of CWB contracts, lack of price transparency, storage issues and sales timing are not included."
This looks quite logical and common sense... comments?
I see this is the cost estimated for the CWB single desk... in the latest Informa study!
"Executive Summary
The following study has been conducted to address the need for up-to-date and
objective analysis of the potential impact for farmers of an open market for wheat, durum and barley in western Canada.
The approach utilized in this study refrains from a theoretical modeling approach in favour of direct evaluations of price performance and
cost efficiencies by open market and single-desk selling systems. These comparative results are then applied to the Canadian marketplace to assess how farmers’ revenues and costs would be affected.
One of the key claims made in support of a single-desk selling structure is based on the ability to exert market power within a given marketplace. Contrary to the claim that the
CWB holds more than 20 percent of the international market, the analysis shows actual market share of 14.5 percent of the all-wheat trade and 11.0 percent of the global barley
trade. The CWB falls far short of the generally accepted 25% market share threshold needed to exert influence over global prices of wheat and barley.
When key individual importing countries are evaluated, there are few in which the CWB holds sufficient market share to potentially exert market power. Of the 91 countries to
which Canada exported non-durum wheat, only Ecuador potentially exhibited
characteristics suggesting that Canada has sufficient market power to leverage prices. If the criteria are relaxed slightly, four other countries (Colombia, Ghana, Guatemala and
Venezuela) would meet the criteria for the CWB to potentially exert market power.
Canada holds a more dominant position in the global durum market. Among the 41 countries to which Canada exported durum, market influence by Canada could
potentially be exercised in six. The analysis indicates that Canada does not hold sufficient market power in any of the 20 markets to which it has exported barley during the period under examination.
Even though the CWB does not exhibit sufficient “market power” characteristics to extract premiums, Canadian wheat and barley may at times be higher priced in certain
markets. The reasons for these higher prices however, have little, if anything, to do with single-desk selling. Several of the key benefits claimed by the CWB such as quality,
consistency, food safety, customer service and reliability are not dependent on a singledesk selling approach.
In order to evaluate price performance by the CWB relative to an open market
approach, prices for wheat, durum and barley at export markets were determined. For the core export markets, CIF prices achieved for Canadian wheat were occasionally higher than other exporting countries, but not consistently. Further, when these prices were examined based on the classes of wheat exported, the results showed that in almost every importing country, the “premium” paid for Canadian wheat was actually
smaller than the spread that would be available simply due to the class of wheat sold into these markets. The difference between actual CIF prices and class-weighted prices ranged from $6.84 to $21.41 per tonne, representing a premium foregone by the CWB.
When CIF prices for core durum markets were compared, Peru was the only market in which Canadian durum appears to consistently achieve a higher CIF price than other exporters.
The CIF price comparisons also show that Canadian barley achieves the highest returns on occasion but certainly not on a consistent basis. In the quality-conscious
market of Japan, Canadian barley does not achieve a premium price. In most instances, Canadian values for feed and malting barley are lower than the other two exporters, Australia and the US. On average, Japan pays $15.40 per tonne more for Australian
feed barley than from the CWB. For malt barley, the US achieves $29.81 per tonne more than the CWB price.
When evaluating prices received by farmers in the US and in the Canadian prairies, the analysis shows that for hard red spring wheat, US elevator bids have been higher than
final payments from the CWB in five of the last six crop years. The average differencebetween the Canadian and US values shows that Canadian farmers have received $15.97 per tonne less than their American counterparts. The comparison for durum shows similar results. For the crop years of 2001/02 to 2006/07, Canadian farmers
delivering 1CWAD 13.0% have received $12.29 per tonne less than US farmers and 1CWAD 11.5% has been $20.32 per tonne lower.
The malt barley price in the US has outperformed CWB final payments for both two-row and six-row malting barley. In three out of the six most recent crop years analyzed, the
average difference over those six years favours US elevator bids by $5.51 per tonne.
The six-row CWB final payment is lower than the US elevator bid in five of six years, and the average difference is $21.11 per tonne. The feed barley market is the one in which the CWB final payments have performed the best relative to US elevator bids, but
the average difference still favours the US by $2.85 per tonne.
Some observers have pointed out that US elevator bids are not a useful comparison because the wheat, durum and barley markets in the US are limited to domestic consumption only. This statement ignore the fact that the US has exported an average
of 58% of its spring wheat production and 44% of its durum production, indicating that elevator bids in the US are not simply based on domestic use, but also reflect export
markets.
In order to examine the potential system efficiencies of an open market, two comparative measures were employed. The first utilized efficiency data from the
Quorum Corporation which provides an “export basis” for several CWB and non-board crops. The export basis measures the overall logistics cost associated with moving
prairie crops to an export position. The export basis levels for wheat, durum, canola and yellow peas (the crops analyzed by Quorum) have been $55.80 per tonne for CWRS
wheat, $68.64 for durum and $45.37 for canola. This industry-developed measure
clearly indicates that the cost of handling and marketing CWB grains is significantly higher than non-board crops and challenges the notion that the CWB is able to drive efficiencies in the system through its size and clout in the Canadian marketplace.
While the CWB has taken steps to manage administrative costs, increases in this area are another reason for the trend toward higher system costs for CWB grains. Over the
past 20 years, administrative costs have risen by an average of $1.99 million per year or
an average rate of increase of 7.2%, in spite of declines in CWB grains administered.
Administrative costs on a per-tonne basis climbed gradually from $1.29 per tonne in 1987 to the mid-1990’s and then rose rapidly to peak at $4.03 per tonne in 2002/03, partly due to a drought-reduced crop in that year.
The second efficiency measure compared system costs in the US and Canada and
indicated that the total non-freight cost of moving wheat from southeast Saskatchewan to Vancouver has been $9.95 per tonne higher than the cost of moving wheat from North Dakota to the Pacific Northwest. This difference is a valid estimate of the greater
efficiency that could be obtained from an open market environment and corroborates the findings based on the Quorum data.
Over the most recent six crop years, the interest farmers could earn by selling in the open market in the US exceeds the interest earned from CWB payments, due to the full
value of grain paid earlier in the year. The gain from open market sales of spring wheat is an average of $3.08 per tonne, while the average gain for durum sales is $3.98 per tonne.
While it is difficult to forecast how an open market would affect western Canadian wheat acreage, the experience in other regions of Canada and the world would suggest that at
the least, wheat area would stabilize if not increase slightly. Wheat acreage in western Canada has dropped more sharply than in eastern Canada and has declined more rapidly than any other major wheat exporter. To quantify the enhanced gross revenue that would result from an open market for wheat, durum and barley, the estimated price differentials and costs of the CWB single desk were applied to volumes of the applicable crops. These estimates show significant
savings could be achieved by farmers by moving to an open market, from a low of $13.72 per tonne for feed barley to a high of $47.57 per tonne for durum. Based on the most recent five year average of grain delivered into the CWB pool accounts, revenue
gains from an open market system would total $450 million to $628 million per year.
These savings estimates are based on those aspects which can be quantified, while items such as inefficiencies of CWB contracts, lack of price transparency, storage issues and sales timing are not included."
This looks quite logical and common sense... comments?
Comment