Impact of the Loonie/Ocean Freight Rates on Prices

[Vader]

In reality grain is priced delivered to the customer. At least in the customers mind. So when a customer like China is looking at buying grain he looks at all of his alternatives and makes his decision based on business principles. Take off ALL the freight and handling and that is the price the producer gets.

You can identify all the price points in between such as FOB Vancouver, delivered elevator, or FOB farm but the end result is the same. No matter whether that producer is in Australia, the Ukraine or Canada.

The sad thing to note here is that where Canada is at a freight disadvantage high ocean freight such as we have today magnify that disadvantage. China is paying 50.00 per tonne more for Canada's malt barley today than they were a short while ago and with ocean freight rates going from 25 per tonn to 75 per tonne and with the dollar going from 65 cents to 83 cents farmers in Canada are netting 50.00 per tonne less than before.

Best solution long term is similar to the beef strategy. We need to do something with a lot of this product here in Canada. Livestock, ethanol, bio-diesel, electrical power generation, and to a lesser extent milling and malting. Consumer demand drives all of these equations and the milling and malting market is a mature market with established players. Not much room to move here.

[parsley]

I realize that "this is the way the CWB has dones business for sixty years",but is it possible to think outside the Government's Wheat Board-CSL Shiplines box?

The point is that business is financially astute and experienced at moving product from A to B. Government bungling and patronage does not facilitate moving goods from A to B cheaply or efficiently, hence, farmers suffer demurage, another needless expense.

Parsley


Business will find the cheapest freight, and work in unison with other businesses to move product economically.

How can farmers lose here? Farmers are paid FOB. Not a difficult concept, is it Vader?

I understand that the demmurage staff at the CWB will be out of a job, but my interest is with farmers' bottom line these days.

[TOM4CWB]

Vader;

At the CWB Caresland meeting the Ontario Wheat P M Board (OWPMB) has been proven to have created a $15-25/t benefit by allowing the industry to handle wheat between delivery to elevators and endusers domestically and internationally.

If we moved to the option of the CWB being paid $1.50/t... on all board grain that is exempted like Ontario does for their farmers... the issue of survival of the OWPMB is NOT an issue.

If all OWPMB grain is marketed directly... and farmers are all getting $15-25/t benefit because of efficiencies the private trade can and do create... the OWPMB has done the best thing possible for wheat producers by exempting wheat sales.

Many larger grain co's own ships, have direct relationships with endusers... know how to maximise currency swings and are responsible for grain quality being delivered to end users.

And just watch the flow back to us as wheat farmers... if the responsibilities for manageing logistics is in their hands... those who are best at manageing this part of the system... because they own it and are it... instead of being cost plus through the CWB.

The OWPMB still has it's monopoly... and can arbitrage that wheat system for farmers if the trade gets out of line by marketing grain directly if the trade get's too greedy. Same could have been the case with the CWB IF they had the intellegnce to step into the new Millenium. We need choices... not a destroyed CWB.

On currency... the CWB is costing us farmer's massive amounts by not allowing the trade to look after this risk... and leaving it with us the wheat farmer in western Canada.

Chairmain Ritter admitted this at the Sherwood Park meeting... by saying the CWB is not an expert at manageing currency risk...

In other words the pool is the tool... and I pay the bill for no viable risk management strategy through the pool account.

Please... we would like to pay you and the CWB to step aside... so we can move foreward with efficiencies back to the farm gate... where appropriate could the CWB at least do this much for us?

[Vader]

Tom, the bottom line in the Ontario situation is that the CWB gets more money from Ontario millers than Ontario farmers do. Once you get that through your head everything else becomes a matter of transportation costs.

Parsley, the CWB is earning more on despatch than they are losing on demurrage so.... get over it.

[TOM4CWB]

Vader,

The OWPMB does not market CWRS wheat.

They market CERS wheat... which has VERY different grade standards than ours out here.

Apples to Oranges... the system the CWB has set up is simply amazing... to set up seperate grade standards in Canada... just for the CWB. 3CWRS can be #1DNS at times... so how is the CWB going to fix this issue in the new DPC?

[parsley]

Vader, Maybe the CWB ITSELF gets more money, but it hasn't been passed on to Designated Area farmers. When you compare profits in farmers' pockets for Board grains vs non-Board grains over a 50 year period, the CWB hasn't performed favorably.

When I look at the CWB, I give it a 20 year glimpse Vader. Lets look at the demurrage charges Prairie farmers have eaten. You will undoubtdly want to reference a neutral-demurrage month as does the CWB when it suits their purpose.

The point is, prairie farmers have eaten unbelievably high demurrage costs over a long period of time and
demurrage has every potential to eat out profit from prairie farmers again in the future.

Let's learn something from the past if we want to stop the drain from the pooling accounts, Vader.

Let's start at the beginning, Vader. I want the bleeding to stop. The question is do you?

Parsley

[Vader]

Tom, it is not apples to oranges.... it is wheat to wheat and you can find equivalent grades and equivalent sales. When you compare those equivalents you will find that the Eastern millers pay eastern farmers less money than they pay for equivalent CWB grain.

An Eastern farmer put it to me this way. The Eastern miller looks at where the local farmers next best option is which is generally the export market and then they widen their basis accordingly.

Eastern farmers have no bargaining power. The CWB does.

[Vader]

Parsley, I am glad to hear you admit that the CWB gets more money. Your statement that the farmers do not get it is a reflection of the averaging effect of the pooling system.

In fact the farmers get every penney of premiums earned by the CWB. The CWB only deducts their admin costs (which are as I have mentioned before are substantially offset by interest earnings.)

Producers discontent with the CWB I believe is largely due to the pooling system, not single desk selling. Single desk selling makes extra money.

Pooling prevents proper market signals from flowing through to producers. Producers do not see the premiums from our best markets nor do they see the bottom end of our sales program. All they see is the net effect of the sales to countries around the world over an 18 month pooling period.

Perhaps we should move to a contracting system where you sign up acres for a particular destination market, not unlike the Warburton ontract. I would suggest that we go one step further and remove that contract entirely from the pool. The only question then is who would get to grow for that contract. Perhaps there would be a contract acceptance level in accordance with the ratio of acres offered to the volume required for that customer. Cash price, act of God, 100% payment on delivery.

[TOM4CWB]

Vader;

Eastern Millers have just as much ability to arbitage DNS/NS Hard Red Spring prices to 3CWRS as they do to CERS wheat.

If the CWB offering price is not competitive with US Hard Red Spring... guess what... the miller will buy the US Hard Red Spring wheat. The CWB cannot control imports to stop this arbitrage of markets.

Quality for quality, service for service provided... we are parity priced with Ontario Wheat... and US Wheat.

Unless there is some US Wheat import restriction the CWB is controling we don't know about Vader? Is this what you are saying?

Or are you expecting us to believe Millers pay the CWB more... because you are nice guys and deserve it apart from the product provided?

[charliep]

Vader

I have to challenge the point that eastern farmers have no bargaining power whereas the CWB (I notice you don't say western farmers) does.

First, I haven't seen the hard data to support this the CWB price premium that is talked about versus Ontario. If this was a game of liar's dice, I would asking someone to lift the cup. Second, I question why this statement is relevant to a western farmer.

Eastern farmers have choice of marketing alternatives (including Ontario Wheat Board), timing sales, who to do business with, etc.

On the western side, farmers have one choice of one marketing agency (albeit with pricing tools).

The real question is whether on a year in year out basis, which system returns farmers the best returns. The eastern system has moved to an open market. The western payments still includes timing of sales, pooling of returns across different customers based on returns to pool, freight adjustment factor, assumed grade spreads in the pooling process, etc. As the CWB has said over time, you can't compare a market that provides a spot price with a pooled payment. You can only compare the actual annual results of the two systems - which one provides farmer the most money.

As a note, I find it interesting the Canadian National Millers doesn't complain about prices. If they were being gouged/pay premium prices, they would seek another system. The current system likely provides a fair price for millers. It also allows them to negotiate as an industry on price versus individually. They all buy differently in terms of timing but their daily quotes are the same adjusted for location. As is indicated in Tom4CWB, they have choices as to outside markets.

The benefits the millers and the CWB recieves doesn't necessarily translate into farmer benefit. The farmer result (payment/price) is the pooled value.