In simple terms......the CWB is a joke

[lakenheath]

My neighbour mentioned the other day that he had some Italian durum buyers tour his farm in Southwest Saskatchewan. They were absolutely impressed with the durum we grow in our area and stated that if they could buy our durum direct, that they would pay a huge premium for it. Which, to me, wasn't anything I hadn't heard before. But what blew me away was the discussion they further had. The farmer showing the fellows the durum had it graded at the elevator earlier. It was downgraded because of slight midge damage and bleach. The durum was still nice looking, had good protien and weighed up well. The Italian durum buyers said that midge was not a problem at all and that bleach is not much of an issue, and that they still love our durum. Their only concern would be too much pieball (which there was none). That being said, we have an amazing oportunity to sell the best durum in the world for number #1 with a price premium, but what happens. Our good old Canadian Wheat Board takes our durum and mixes it with other crap (the wonderful concept of pooling) and tells us to be happy with a number 2 durum (because the CGC told them it was a number 2 or 3). Socialism works so beautifully. Gather all the grain and let the goverment sell it for us and be happy with $3.70 durum, because the CWB works for the farmer. It is sickening. Something has to change, and that something is not $500/tonne fertilizer or getting ****d at the gas pumps. We need freedom to market. That's my rant for the day.

[silverback]

Good rant.

Makes you wonder how many small deals would be possible with buyers like that if they could come and buy what they like or from who they like?

Sorry, that would be freedom, crazy thought again.

[Vader]

The Italian pasta manufacturers are very astute business people. They have some of the best blending and milling technology in the industry. This allows them to purchase HUGE quantities of #4 Durum from Canada and transform it into high quality Italian pasta, which they sell around the world at a premium.

Canada can produce more durum than is traded around the world in any given year. Last year the world produced the most durum wheat in the history of the planet.

Compare that to the situation with Lentils right now. Canada grows a high quality lentil crop (generally). Canada can easily produce more than the world demand. A large crop of lentils is expected right now and the buyers are said to be out of the market. They are waiting for prices to "soften".

Larry Weber said on the radio yesterday that if you haven't locked in your lentils you may not find a buyer at all.

That is how the open market functions when there is a surplus. Will there be willing sellers into this market?

Is Canola any better. Larry Weber says that the USDA report will report more beans than expected. Canola prices are in the tank. Again the open market is functioning as expected. Who is driving canola prices down? Is it the sellers? Of course it is.

Occasionally you hear that prices are going higher because farmers are "reluctant sellers". Farmers have a lot of market power. Sadly it is not organized market power and it is generally used to depress the market. How many farmers will keep their grain off the market when there are large fuel bills to pay?

I don't know if anything positive will become of Wayne Easter's study and recommendations. His most pertinent observation was that the biggest problem farmers have is a lack of market power. I would restate that as I have already in this post. Farmers have tremendous market power but it is disorganized. Farmers compete with each other not just in Canada but around the world to drive prices lower. Farmers are driven almost like a cancer to increase yields and overproduce what the marke will pay reasonable (profitable) prices for.

A well known crop consulting company tells their clients that the way to profit on their farms is not through better marketing, not through lowering input costs but by maximizing yields. In the short term and on any individual farm they are absolutely correct. If you can lower your unit costs by increasing yields you will do better than your neighbor, until all the neighbors catch up. (which they will).

The title of this section "Commodity Marketing" as important as it is will not solve any problems while this drive to out produce and out sell our neighbors continues to drive prices below the cost of production. The slight margin you can gain over your competitor/neighbor will only delay the inevitable failure of this business.

[charliep]

An interesting study to read while you are waiting for drier weather.

http://www.esteycentre.ca/journal/j_pdfs/furtan6-2.pdf

Recommendations out of this study.

Recommendation 1 - The CWB move away from its reliance on the federal government guarantee for the pool account by self-insuring the pool account. All pricing decisions would then be the sole responsibility of the CWB management and board of directors.

Recommendation 2 - The CWB give up its single desk selling powers in the domestic market in exchange for the ability to market all types of grains produced on the prairies. The single desk powers would remain only for export wheat, durum and barley.

Recommendation 3 - The CWB purchase grain-handling assets at an advantageous time that facilitates the maximaizing of market returns to prairie farmers. This would move the CWB in the direction taken by the AWB.

[TOM4CWB]

Vader;

You are giving classic examples of what will fail in the future and has failed many times in the past;
Growing a commodity on speculation for a future sale that is unknown and unplanned.

This type of faceless marketing will destroy many farmers world wide, not just in Canada.

The CWB is key in promoting the breaking down of personal relationships that are key to marketing success and loyalty that allow our farms to prosper.

Selling at a loss below the cost of production is a specialty of the CWB.

1st, the CWB doesn't know or care what my cost of production is.

2nd, the CWB has only the initial payment as a true cost of production for sales purposes... and the CWB Act states anything over the initial payment is "Profit"...

3rd, since the CWB maintains a "single desk" it has no true reason to return above my cost of production, or even my cost of production.

4th, since the CWB maintains a "single desk" the less we produce, and the lower the CWB returns that are given to us as producers, the easier it is to sell our wheat and barley.

Making the CWB buying customers the happiest while returning the most to the principal CWB shareholder... the Canadian consumer, is the most rewarding to the CWB sales staff on a day to day base. These are the folks who they (the CWB sales staff) have personal trust relationships with, not grain producers.

This is why the CWB structure as exists today CANNOT meet the needs of western Canadian farmers.

Marketing choice would fix everything in one instant.

Earning each others trust and loyalty (between CWB sales people and grain producers) is the foundation to building a strong marketing future for grain producers in western Canada.

[Vader]

Tom, I am painfully aware of your concerns over selling below cost of production. This is not the private domain of the CWB. Who is reponsible for the current price of canola and lentils selling below costof production?

The CWB is aware of your cost of production. I was at a producer meeting where I asked one of the CWB's sales reps what he could do with that information while negotiating a sale. He said that he could spend enough time to make the customer aware of our cost of production and the customers response would be that he wouldn't give a s**t.

I heard the head buyer from COFCO the chinese buying agency say that he would pay a premium for Canadian Wheat but only if it was competitive with countries like Argentina.

Tom, I agree with much of what you say in identifying the problems but I cannot agree with your solution. Marketing choice is code for destroying the CWB since the defining attribute of the CWB is the single desk. Hence you would give up the only strength that farmers have. The only market power that farmes will ever have is if they stick together. You would advocate the opposite. The law of the jungle. Only the fittest will survive. Who will that be? You Tom? Ultimately the tigers will get you also. Farmers are not at the top of the food chain.

Another thing that I agree with you on Tom, is the trust relationship that is absolutely necessare between the farmers and the CWB.

The crucial phase of this is yet to come and that is the complete break away from the Federal Government. In the meantime the efforts of our farm business reps who deal directly with the farmers, the people who design the pricing options, and the policy people who advocate on behalf of farmers are turning cartwheels to prove that the farmers are first and foremost in all that they do.

Tom, you may not be aware of the trust relationship that is being built by the CWB with farmers because you refuse to dream about the positives. I choose to be optimistic and I truly believe that the CWB is a solid framework to work with. It has much room for improvement and those improvements can and will be implemented with farmers in control.

Lets work together for solutions to our problems. Lets not go our own separate ways. We need to shore up our camp quickly if we are to survive. Lets get over this family feud and use the tools at our disposal to make things better for farmers.

[agstar77]

You are correct in some of your assumptions, as the Cwb doesn't have a mandate to sell at a profit for farmers only to maximize returns . Having said that maybe it is time to restructure our entire grain industry. The future may be in contract production for cereal grains. Farmers would contract to grow wheat at a certain price and that would be contracted to a buyer by the CWB. If the price wasn't sufficient we would be out of the export market. There would be no more producing as much as we can to make railways and grain companies happy. Farmers would have to accept this program. This system might mean disruption of local supplies but it could act as real market signal for farmers. The downside would be a decrease in production and the displacement of a large number of farmers , but in the long run it could mean the survival of cereal farming in the prairies. I put this out for discussion. Hopefully this is outside the box thinking that pro and anti CWB marketers can agree on . Something has to be done, we can't continue to produce below the variable cash cost of production.

[Vader]

I have been thinking about a cash contracting program for wheat for some time. The problem will be to devise a method of fairly allocating the volume of sales available. It could simply be first come - first served. Or it could be like the existing contract program where everybody offers what they have and then everybody gets pro-rated down to required tonnage.

In any event people would decide before the plant if the price would allow them to cover cost of production and a suitable profit margin.

I think you are right. This would simply mean less production, and I don't know what the extra acres would then be put into. It seems that we already overproduce virtually every other crop out there.

[charliep]

Just a note to make sure everyone doesn't over emphasize the production side. I think the grain industries goal should be to grow the demand side as well. When I look at today's stocks report, it highlights we are still carrying a lot of grain/oilseeds. As others have highlighted, this is partly a farmer decision (store until better prices). There are elements of not having the markets to go to - this past year was a tough in terms of having a lot of feed wheat. China didn't open up as expected for canola/bought beans instead.

The industry emphasis should be to grow markets that provide profit potential for all value chain participants. If I take the thread back to its original points, the question is what market system or hyrbrid of systems most effectively does this.

[furrowtickler]

A common theme here... overproduction and cost of production.
On our farm we have seeded corner to corner for years, adopting direct seeding, and tring to maximize our efficiency. I am sure this holds true to most all Western Canadian farmers. As far as I am concerned the majority of us have become some of the most efficient, diverisified producers on this planet..period.
Maximizing our output is getting us nowhere,our costs will crush any profits even if grain prices increase in '06.
Our little solution for our 5000ac farm, we have to change from cont. farming back to at least 25% chemfallow /smf. Run a simple smf/canola/pulse/cer that does not require extra fert at all.
We have done this in the past few years and it is the only way we can see any profit at all in the next few years.
This allows us to opperate with one set of equipment, drop our financial risk and stabilize yeild potential.
The trick is, if you rent land, good luck with your land lord.
We have reciently dropped land that demanded cash rent and all cropped acres. To he!! with them, tell them to go back and farm it.

[Vader]

furrowtickler,

good advice - you might consider underseeding your cereal to clover and then plowing it down in your summerfallow year. Grow your own nitrogen and avoid the astronomical cost of N fertilizer as it spirals out of sight along with natural gas.

25% less production across the continent and in other grain exporting countries should have some impact on prices.

[silverback]

You will have to forgive me for not feeling too sorry for someone who is dropping from 5000 seeded acres to 3750. Some farmers who are seeding 1000 - 2000 acres need to have that land working for them most of the time. In many areas there is also not much chance of buying more land unless daddy is passing down lots of free and clear land, and renting land to try and make a couple of bucks an acre is what a guy has to do.

I am glad you guys are able to drop your production because you don't need it, but many out here can't.

[Vader]

silverback,

you are absolutely right. Many of us are in a position where fixed costs for machinery payments, land loan payments, and just putting groceries on the table dictate that "x" number of dollars are required each year. Given that commodity prices are such as they are that results in the need that every acre they own be producing.

What I am saying is that this cycle will never end (higher production accompanied by higher input costs, and leading to lower commodity prices). It is a game of musical chairs and each year more farmers will fall by the wayside.

An old saying goes that you are either part of the problem or part of the solution.

To me the solution is not finding more markets for this "commodity". The solution is to reduce the supply of this valuable food product and get fairly paid for it.

It is a tough nut to crack. How do you get farmers to voluntarily reduce production. As long as individual farmers cannot find a path to reduce food production while maintaining their cash flow it will not happen. In fact higher commodity prices are counterproductive as this only leads to increased production.

What we need is alternative use. The only solution that I see is energy crops. I am very skeptical about ethanol, but bio-diesel seems to have a lot of potential. I do not hear the debate about energy in versus energy out when it comes to bio-diesel. You don't have to distill the product and drive off every pound of water using a lot of the valuable energy that you are producing. When you crush canola you get oil, and the little bit of water separates on its own.

How many acres of canola would each of us have to grow to supply our own fuel for all of our machinery. Would it take 20% of our acres? What if we had to supply all of the fuel for the trucks, trains and ships that move our products. Would that take another 20% of our acres? Freight and fuel and two of our biggest costs. It would be better if we had a revenue stream to offset these expenses.

Now you don't have to summerfallow 25% of your ground to remove that food production from the system. What would that do to grain prices?

It will all hinge on the price of a barrel of crude oil. What happens when I can produce a barrel of bio-diesel for less than what a barrel of crude is trading for? If you are an oil company and you see that an alternate energy source could be more competitive, can you get your banker to finance the drilling of another oil well, or the expansion of a very costly tar sands project?

Today's cost of oil whether it be $70.00 or $60.00 includes a lot of profiteering since the cost of production has not changed substantially from a year or so ago when oil was at $40.00 per barrel. I am not sure if this means that oil could be driven back down to the $40.00 level since that would ignore the supply and demand issues. I do know that as time goes on the cost of exploration for ever more elusive "new" oil resevoirs does get more costly and that the energy efficiency of recovering tar sands and oil shales will also result in ever higher energy costs. At some point in time we should be competitive as energy producers.

When that day comes I want farmers to be in an equity owners in the bio-diesel production and distribution facilities, rather than just suppliers of the raw material.

If we start now perhaps we can devise a plan where farmers transition some of their acres out of food production while maintaining the vital cash flow to service their debt and provide a living.

[GrainVac]

Don't often agree with you Vader, but this post really makes sense to me...Only problem is I/my farm will likely disappear before it happens. Where/how do we start?

[melvill]

Interesting background to this discussion is that, in the U.S., a huge percentage of the new ethanol production there is farmer owned. Here in Canada, that is not the case.

I believe the U.S. ethanol situation is a deliberate policy decision.