China Sale

[Vader]

News release
CWB signs million-tonne new crop sales agreement with China

Winnipeg – The CWB today signed a Memorandum of Agreement (MOA) with the China National Cereals, Oil and Foodstuffs Import and Export Corporation (COFCO) for the sale of 1 000 000 tonnes of milling wheat in 2005-06. The MOA calls for the wheat sale to be negotiated under normal commercial practices and at market values. At today's prices, the value of the agreement is approximately $250 million.

The MOA was signed in Beijing by Bill Spafford, the CWB's Vice President, Marketing and Haiguang Shi, General Manager of the CWB's Beijing office, with Mr. Yu Xubo, Vice President of COFCO and Madam Yang Hong, General Manager of COFCO's Wheat Division. The signing, witnessed by Canada's International Trade Minister Jim Peterson, coincided with the Government of Canada's trade mission to China.

"China is an important market for the high-quality milling wheat produced by western Canadian farmers,” said Spafford, noting China was the largest foreign buyer of Prairie-grown wheat in 2003-04, with imports of 1.8 million tonnes. "We are pleased to commit to continue meeting the needs of the Chinese market in the coming year."

The CWB's trading relationship with COFCO began in 1961 with a long-term sales agreement for Prairie wheat and barley to China. Since that time, China has become one of the CWB's largest customers, importing more than 120 million tonnes of grain. The CWB now provides about half of China's total annual wheat imports and one-fifth of annual malting barley imports.

In 1994, the CWB opened a branch office in Beijing to provide service to COFCO and the CWB's other customers in China.

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 company sells grain to more than 70 countries and returns all sales revenue, less marketing costs, to Prairie farmers.

For more information, please contact:
Louise Waldman
Manager, Media Relations
Tel: (204) 983-3101
Cell: (204) 479-2451

[Incognito]

Quote:
"The CWB now provides about half of China's total annual wheat imports..."

Unquote

Vader:

The USDA's last two forecasts has China importing 8 million metric tonnes of wheat this year.

Does this mean the CWB will export 4 MMT of wheat to China or that the percentage will drop to 22.5%?

Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital. - Aaron Levenstein

[Vader]

I think the quote refers to the previous years actual figures, not the forecast.

[melvill]

Sorry to interupt such a serious discussion but, when I read Incognito's quote from Aaron Levenstein about bikini's, I actually laughed out loud. (The mental image was quite wonderful) One of my colleagues from across the hall poked her head in to see if I was "loosing it"!

Incognito, have you got any more of those hidden up your sleeves? If so, please share them. My Grandma, who really had a pretty tragic life, always promoted laughter because, in her words, "the Irish even laugh during wakes."

[wmoebis]

I would like to hear the producers value. Take off CWB,s charge, frieght to port, elevator and terminal charges, CGC charges and all other costs what will the price back to us be? Will we make 1960's prices? Is this something the CWB can realy brag about, price wise, on our behalf?

[Vader]

Prices have not been negotiated. I listened to the head of the grains and oilseeds division of COFCO (the chinese buying agency) say that they like Canadian grain and they are prepared to pay a premium for it but it must be at competitive values.

A couple of months ago the Ukraine was setting the competitive values for wheat with export prices of $115 US per tonne. Today we have a new low bidder. Argentina has found that they more than enough grain for their favorite customer (Brazil) and to carve out their share of the export market they are pricing at $107.50 US per tonne.

If Canada continues to grow low quality grain in quantities in excess of domestic demand, competitive values versus the Ukraine and Argentina will determine returns on your farm. This was the case in the 1920's and it continues to be the case today. Nothing to do with the Canadian Wheat Board.

[Incognito]

Vadar:

Funny you should bring up 1920's because Ken Rosaasen (prof. U of S) dropped off a speech from the Dean of Agriculture circa late 1920's or 1930's last week.

If you changed the date on the top of it, and made discounts for the the vernacular of the day, you would swear they were discussing agriculture in 2005.

Change evolves from crisis moreso than not, was my observation. This year, the silence from the farm is deafening. So much so, that it is eerie. To borrow an old phrase:

"If a farmer falls in the country, does anyone hear it"?

If you would like, i'll send you a copy. Failing that, email Ken or call him, I'm sure he would fax it.

[Incognito]

geez Boone, any more hints and i'd have to spell it out for ya....LOL

[Vader]

During the first election in the Ukraine I listened to a Canadian observer tell what it was like in Kiev. He said that from his vantage point he could see a McDonalds and more Mercedes, BMW's and Volvos than you would see on the streets of Toronto. He also said that just outside the city there were farmers using horses and wagons. A bit later someone remarked how much that was like Saskatchewan.

My thought was how Saskatchewan farmers and Ukranian farmers fates were intertwined.

As long as the Ukranian farmer and his brothers in Kiev have this discrepancy in incomes and lifestyles farmers in
Saskatchewan are unlikely to see sustained profitability and returns to labor and management on par with our brothers and sisters in Regina.

[wmoebis]

1,000000 tonnes of milling wheat.
the value of this sale is 250 million dollars.

What am I missing?

[ianben]

Perhaps because CWB sells unpriced grain Ukraine and and Canada will always have poor farmers.

1,000,000 tonnes with just a premium over the lowest price in the world and you think you have done a good job!

These sort of deals do nothing but drive prices lower and lower to the detriment of all farmers.

At least Ukraine and Argentina put a price on a tonne.

The CWB gets a premium but on what?

[charliep]

Was to the Ukraine this summer and I don't think any Canadian or European farmer would want to trade places.

Just as a interest, the sale to China would likely (not 100 % sure) be at competitive prices with Portland wheat. These prices can be found at:

http://www.ams.usda.gov/mnreports/JO_GR110.txt

Dark northern spring 14 % protein wheat is listed at USD $5.16 to $5.26/bu or about Cdn $235/t. Roughly similar to 1 or 2 CWRS 13.5 protein in Vancouver.

Hard red winter wheat (13 % protein) is posted at USD $4.35/bu or Cdn $196/tonne. DNS 13 % protein has a similar value.

Depending on the quality, this is likely a good range where a Chinese sale would occur.

[Incognito]

Ianben:

The US Export reports were issued on Monday and as a reminder why they were instituted, there is a great website explaining why and how it is collected.

For those of you that do not want to read “The Grain Merchants” as it explains in detail why it was instituted, here is the Coles Notes version.

Quote:

The Export Sales Reporting Program has its roots in the unexpected purchase of large amounts of grain by the Soviet Union in 1972. The huge, unanticipated purchases of U.S. wheat and corn that year produced a sizable run-up in U.S. food prices and depleted U.S. reserve stocks.

In addition, there was concern that some companies might have had an unfair advantage in that situation because they had access to market-sensitive information that was unavailable to the public. To ensure that all parties involved in the production and export of U.S. grain had access to up-to-date export information, Congress mandated Export Sales Reporting in 1973.

Unquote

The CWB was involved in some backdoor politics during the great grain robbery as well. In fact they sold first, before the huge run-up.

Transparency is a key issue in the United States’ continual challenge of the CWB.

[wmoebis]

charliep
is the 5.16-5.26/bus at port like ours?
Also remember that DNS and other US varieties are higher yielding and they have lower grading factors if we grow DNS etc. it is feed wheat. We have to compare apples to apples.
We grow the Cadilac's of wheat and sell into Chevrolet market price.
If we grew the same higher yielding quality as our compeditors could we still get the same price.

[charliep]

Prices are quoted at Portland Oregon. This should come close to Vancouver in terms of costs - I think Portland/Seattle port costs are lower but there are factors.

To bring the prices back to the western prairies, you would knock off anywhere from $50 (W. AB.) to $65/tonne (SK.)- that is about $6 for fobbing, $40 to $55/tonne for rail freight, elevation, cleaning. and about $4/tonne for CWB costs (hopefully someone will correct me if these costs are out).

Milling quality DNS cannot be compared to feed wheat. There advantages and disadvantages to both systems. Besides, quality is in the eye of the buyer and their willingness to pay.