Who Controls Grain Handling?

[Vader]

parsley, you can spew some really vile stuff here. anonymously. keep it up. others will soon come to appreciate the type of person you are.

oh and while you are at it why don't you try encouraging others to do the same. show them how to be a really class act!

[Vader]

Charlie,

You asked about ethanol and biodiesel. Certainly if the CWB was purchasing canola for biodiesel it would be competing on the open market. In fact I believe that for ethanol it would be much the same.

I see ethanol plants being set up as a completely separate entity from the CWB. The CWB might be involved at the early stages in setting it up, doing the business plan, the marketing plan, and whatever other research was required to get the project up and running. I would want to see this company as a Limited Liability Company (LLC) under the Canada Business Corporations Act. I would hope that the CWB would make a portion of the capital investment and that another portion would come from farmers. This new corporation would have its own board of directors. The CWB may have no further involvement other than its input at the board level relative to its investment share. The CWB currently has no business relationship with the existing ethanol plants.

I see a possible scenario where farmers could ask the CWB to make a small deduction of perhaps 10 cents per bushel from their grain checks. The current administration cost of the CWB is about 70 million dollars which amounts to between 8 and 10 cents per bushel. If only half of the farmers participated and assuming a debt to equity of 1:1 that would build a 70 million-dollar ethanol (or biodiesel) plant. I suspect that level of equity would not be required and that some of the capital would come from the CWB. So in fact perhaps only a quarter of the farmers would be involved in the project. If all of the farmers wanted to participate perhaps we would be talking about building three or four plants.

In this scenario the ethanol plant would be free to purchase wheat on the domestic market in exactly the same fashion as a feedlot would today. In fact if at some point in time it was determined that the ethanol plant could make more money using a different feed stock such as corn it would be free to do so.

For the CWB to do this under the existing legislation would require an exemption from the Minister of the CWB. Under the current legislation the CWB is prohibited form owning “real” property. (real property being anything attached to the ground, such as elevators, mills and terminals) I would hope that given a positive business case that this would be something that the new Conservative government would consider worthy of their consideration. Husky Oil is building two plants now and if you added four more similarly sized plants for a total of six they would consume 2 million tonnes of wheat per year.

This additional two million tonnes of demand will not drive the price of wheat up in and of itself but at least it gives producers another alternative in marketing their grain. Perhaps long term demand for ethanol which translates into additional demand for wheat will add some competition for available supplies in the market place. There are many other factors which impact on world stocks and prices ultimately depend on what the resulting inventory levels are.

For seven out of the last eight years the world has consumed more wheat than it has produced. In other words we are living barely hand to mouth when it comes to wheat. However there just happens to be 135 million tonnes of wheat sitting in inventory around the world. This gives consumers a sense of security knowing that the pipeline is full and they can order wheat and have it delivered to them on relatively short notice. If additional demand can slowly bleed off that surplus inventory and we can get down to 100 million tonnes of inventory customers may start bidding up prices. Honestly I do not know at what level this will take place.

In my example where there is an additional two million tonnes of annual demand created by Canada’s ethanol plants and if that were the only variable it would take the next 17 years to draw stocks down to 100 million tonnes. Luckily there are other parts of the world that will be making wheat into ethanol. Perhaps in the future Canada will raise the mandatory ethanol blend levels and we will need more than 6 plants producing ethanol from wheat. Another possibility is that Canada could export ethanol. That will depend on our ability to compete and the freedom to trade ethanol with other countries.

[chaffmeister]

Where to start…
There are many issues on this thread I’d like to comment on, but in the interests of time and space, I will limit it to a few. To put my comments in perspective – I am not a farmer, nor do I work for a grain company, an end-user, the government or a railroad. In other words I have no vested interest in this business – only many years of experience in it and an aversion to BS.

In an open (dual) market, the CWB would not be “forced to bid to the grain handlers for the use of their grain handling and transportation facilities” from which Vader concludes that “tariffs charged for CWB grains could increase substantially compared to the same grain handled by the grain company”. He also says that “the port terminals would present the same difficulty”. Vader, you miss the critical point that grain handling is a fixed cost business and with sever overcapacity in both primary origination and terminals, I think you can be assured that grain companies will still compete aggressively for any incremental business, whether for the CWB or others. Consider what the terminals pay small grain companies for that incremental business. I think it is safe to say that the business of handling grain would be quite different with a voluntary CWB in the mix, but it serves no purpose to throw out half-baked ideas that do nothing but paint a picture of an impotent CWB in an open market – that only scares some farmers into clinging onto the CWB's dominance (what some call its monopoly) longer than they would otherwise.

To Vader on your comments about CWB goodwill and how we would lose it all, etc: Stop it, your scaring people. Seems you want everyone to believe that the CWB could not operate in an open or dual market. But, as others have asked before, why is the CWB so different that AWB or the Ontario Wheat Board?

Vader (not to pick on you but…) Interesting ideas about the CWB building ethanol plants and allowing farmers to make equity investments (through a checkoff). But if the CWB made the initial investment, doesn’t that mean farmers are making the full investment (since the money the CWB has is really farmers money in the first place). Wouldn’t it make more sense for farmers to do this on their own? I’m fascinated that a CWB director would suggest this after the CWB dismissed, rejected and ultimately killed (not that long ago) a similar idea (a pasta plant owned by farmers); the only difference between your idea and the pasta idea was the involvement of the CWB. What does the CWB bring to the table anyway (other than the farmers' money)?

Silverback/Vader: The Auditor General of Canada did indeed perform a “special audit” of the CWB back in 2002. The reason it was called a “special audit” is because it was a far cry from what many wanted it to be. Silverback – afraid you’d be disappointed in the audit and its results because it did not assess whether the CWB was doing a good job or not – because it wasn’t meant to. It was a “special audit” looking only at operational issues such as management systems, governance, strategic planning, performance measurement and reporting, and so forth. It did not look at the CWB’s mandate as a single desk seller of farmers’ grain, nor did it attempt to measure the CWB’s marketing performance. Vader – shame on you for implying otherwise, or if you simply didn’t know any better, shame on you for not knowing.

Vader: Good of you to suggest we all look at Richard Gray’s benchmarking study and to ask him about his methodology. I did both. Among other weaknesses in his approach, he made an assumption that the CWB’s “market power” not only raises Canadian wheat prices, but it also raises US wheat prices. I asked Dr. Gray how he arrived at these effects, particularly on US wheat prices. He told me that he didn’t arrive at that conclusion, rather the CWB “instructed” him to include it in his methodology. Good, clean, independent work, eh? And yes Vader, when the CWB used Dr. Gray’s model to measure its performance, the auditors that went over the results did indeed comment on whether the numbers being fed into the model were appropriate (as you mentioned) – but they were not asked to comment on whether the model itself was appropriate.

Vader: Questions about the sales comparisons shown to the directors of the CWB (as you indicated above):
1. Re “comparative values made by our competitors”: How do you know they are valid values? Do you see the contracts? (I know the answer, but I had to ask.) Are the directors also informed when #1CWRS is loaded onto a boat against a sale of #2CRWS or even #3CWRS? And is that factored into this at all? Do directors get the full story when they are told wheat is being shipped from Churchill to Vancouver at a huge cost? Were the directors told at the time, that grain companies offered to tender to ship this wheat from the country and pay hefty premiums to producers to originate it instead of having the CWB pay big bucks to the railroads to re-ship it? Do you get the whole picture?

2. Re premiums over the CWB’s competitors “for comparable products and markets”: How do you determine “comparable”? What about comparable terms? Volumes? Positions (timing)? I assume these comparable sales are not made on exactly the same day, so how are time differences taken into account? I’m pretty sure most of the CWB’s sales are still made on a FOB basis (please correct me if I’m wrong), such as FOB Vancouver; if so, how do you compare sales made by competitors when you don’t know the ocean freight rates being used on either sale? If the CWB achieves premiums, why do foreign buyers openly and emphatically indicate that they DO NOT PAY premiums to the CWB for “comparable products and markets”? Why do some foreign statistics such as average annual prices paid by Japan to each supplier (available from Japanese customs documentation) indicate that, on an annual basis, Canadian farmers often receive less than Australian or US exporters? Also, how does this all fit with the well-known CWB practice of under-cutting Accredited Exporters to sell around them, once it knows the buyer?

Vader, I’m keen to read your answers.

[Vader]

Chaffmeister,

Thank you for those thoughtful and challenging questions. It will take me some time to draft my replies to all but a few of those questions. some of them will require that I go back to the Board Table and ask more questions and I thank you for that because that is the primary function of a director.

I will probably start a new post as we address each of these issues.

Rod Flaman

[sawfly]

chaffmiester
are you saying canadian supplies and sales would, not have an impact on US prices. i find that very hard to beleive.
just like us corn comming in has no effect on the price of feed barley in canada

[parsley]

Vader....About vile stuff spewing

Maybe I didn't make myself clear. CWB Directors have every legal right to set their rate of pay. As a farmer paying the bill, I respect that the Directors are legally entitled to their entitlements,so perhaps you are upset about the pay rate I estimated, because the CWB Board of Directors sets their own pay scale.

Please post the current rate of CWB per diems for the Board of Directors as determined and approved by the Board of Directors, and also state if there are any new rates that have been approved that will soon come into effect. That will certainly clear the air with regards to vile stuff. I look forward to being corrected.

2. agstar77.... About pitting farmer against farmer

As a farmer, I had my eyes opened during the Western Grain Marketing Panel shenanigans, when the secret meetings between the Prairie Pools and the CWB were exposed. The minutes of those secretly planned meetings clearly revealed the methodolgy these two combined factions would employ,in order to influence and sway the farmers attending the meetings set up. I still have them. Alienation, intimidation and humiliation were all openly discussed. I never forgot that lesson.

3. Vader..... About Anonymously

I don't have a secret agenda. I have never pretended to be anyone else but a farmer, I am not a CWB Director with a a feduciary duty, first and foremost, to the Corporation itself.


You have your staff to worry about, "If the volume of grain handled by the CWB shrinks then staff cuts will be required". I am not a SWP Director either, with my feduciary duty, firstly, to the Corporation. You get my gist. I am a farmer. And I have always defended farmers, and put them first. Young farmers and old farmers. Conventional and organic. It doesn't matter what my name is vader. I am just another farmer writing on Agri-ville's forum that they have generously provided for farmers. But we can smell vested interests.

4. Chaffmeister and Vader...About "returns"

You can benchmark and study and determine and calculate and estimate until the cows come home, and argue about what the Board gets, what price the Board sells for,or how the Board reaches premium markets.

But you've missed the point. Every farmer reading this post knows what he gets, and I'll say it one more time, the farmer has to feed his family on those returns.

I don't care what the Wheat Board takes in, but rather how much farmers get at the end of the day. Farmers cannnot make a living

5. Incognito "Does anyone care of the sustainability of the farm? "


Your question is the only one that counts.

Dr. Gray can study how much more money the Board gets than Cargill gets in Saudi Arabia, until hell freezes over. If the CWB does so well, how come the toughgoofits have so few dollars? The CWB does well for everyone but farmers. The Universities are well paid for the studies they do.

Farmers get the leftovers. The system has run farmers into the ground and it is time we take our industry back. We know how to create wealth. Grain warbles have carefully measured and extracted it. It's time to pull them off our backs.



6. Vader's classic question of 2006: "Would it not be better to work with the existing CWB and make it better?"


Vader's back to square #1. Should be good for another study.

Let's review:

Farmers can't make living.
Farmers want to value-add @ a farmer owned pasta plant
CWB says they will work with farmers
CWB is the reason pasta plant won't work
Farmers abandon project because CWB makes it uneconomically feasible
Vader again says CWB will work with farmer


Conclusion: The only ones making good coin in this cycle is the CWB staff and those getting per diems, David Herle's old-named and new-named polling companies, and the Avis Grays, and the .....well, I'll forget about trying to name them all, and say, EVERYONE BUT THE FARMER.

If that is spewing vile stuff, so be it.

Parsley

[chaffmeister]

Sawfly, I know where you're coming from and I agree with the logic - markets will arbitrage, as they should. When we have a lousy crop, prices here (and elsewhere) move higher. However, it is arrogant of the CWB to assume that it's "marketing activities" are powerful enough to raise US prices on their own. Canadian supply will have an impact, but the CWB's argument that market prices will rise by virtue of it holding supplies off the market doesn't hold water.

If the CWB actually held stocks off the market, it may indeed have the desired effect. However, the CWB has repeatedly said that does not in fact "hold grain off the market" because it must sell grain when the buyer wants it and when there is capacity in the system to ship it. Also, the CWB has said that it strives to sell evenly throughout the year as a form of risk management - providing the pool with average pricing over the year.

Also, buyers who like to be able to book large amounts (something the CWB is proud to say it can accomplish while others can't) like it because they can cover a lot of business without having an impact on prices. In other words, if a large buyer were to cover its needs for say a year (evenly shipped over a year) in open market channels (without a CWB) the market would clearly rally (to the farmers' benefit) - with the CWB, the market doesn't feel the impact. In other words, the CWB quietly and confidentially selling large quantities of wheat will not push US prices higher. (I hope they are getting a premium for providing the benefit of large bookings.)

Bottom line is that the CWB does not control Canadian wheat supply - which does have an impact on world prices. And the CWB's marketing activity has little impact on US prices - except to perhaps weigh on them (by allowing buyers to cover large amounts without market impact). But that wasn't my point.

I was trying to demonstrate that (1) Dr. Gray's benchmarking methodology is flawed, (2) the CWB actually instructed him on what to include in the model, and (3) when Vader (or anyone else) throws their support behind the CWB (or anything else) it makes sense to make sure of all the facts.

[chaffmeister]

Parsley – I beg to differ. CWB performance is definitely the point – or at least one of them. You say you don't care what the Wheat Board takes in, but rather how much farmers get at the end of the day – but aren’t they really the same thing? What the CWB takes in has an enormous impact on what farmers take in. (I appreciate your comments and input regarding CWB waste and mispending - CWB performance in generating dollars also needs attention.)

If we’re talking about sustainability of the farm and someone says they don’t care about how the CWB is doing, they’re missing the point. Either the CWB is a benefit to farmers by bringing home more money (through marketing performance) or it’s an albatross keeping farmers from bringing home more money.

You can’t manage what you don’t measure. And all the measurements that you seem to dislike have told us:
The CWB does not market wheat and barley any better than farmers could themselves.
The CWB system does not work well in niche markets (which are growing in importance).
The CWB does not foster entrepreneurial efforts by farmers.
The CWB comes at a cost you don’t need.

I’ve never seen anything that contradicts these statements.

Parsley – if you are sincere about improving things for farmers (which I’m sure you are) then you need a clear idea of what the CWB really is and what it really is capable of doing and what it can’t do. That’s the first step farmers need to take to “choose” to change the CWB and the system to their benefit - and ultimatley their sustainability.

[parsley]

chaffmeister,

You are exact and exactly right.

I was careless. The point I was trying to make was this.

The CWB say they get the premium price.

Let's say it is $10.00/bu

Then I am not concerned if Cargill gets $8.00 per bushel

Or if Louis Drefus gets $9.20
If I'm getting the best price, I must lean back in the rocker and enjoy it.


But if the CWB gets the premium they brag about, then why is it farmers get such poor returns?

Durum is higher priced in the USA right now, than in Canada.

But the CWB tells farmers that the CWB gets the best price!

We must conclude that the CWB is NOT getting the best price. We must conclude that price discovery is absent in the single desk system.

Price discovery is what we need. But NOT 'CWB price discovery'

Parsley

[agstar77]

I have not seen any proof of your statements CM. Anyone can make statements but since we do not know where you get your information we can only assume that these are your opinions. Not knowing your credentials does not help convince me of your arguements.

[chaffmeister]

Agstar77: Don’t take my word for it – as Vader says, do your own research.

On grain handling tariffs and charges: my points were made based on my knowledge of the industry – you could ask people in the grain business for their thoughts. My point here was that Vader’s comments were misleading (perhaps misinformed) and seemed designed to make people afraid of changing the role of the CWB.

On CWB investment in ethanol plants: just my opinion here, but hopefully based in rational thought. Do you see a role for the CWB? Couldn’t farmers do this on their own? The fact that the CWB got in the way of the pasta initiative is well documented – check old copies of The Western Producer.

On the Auditor General’s Report: Go to http://www.cwb.ca/en/topics/performance/auditor_general.jsp (See paragraph 1 of the Executive Summary on Page 1.)

Dr. Gray’s Benchmarking Study is no longer available through the CWB’s website or on the U of S website. Alternatively, you could check the analysis of Gray’s methodology done by Sparks Companies Inc:
http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/agc6751?opendocument

On my questions about sales comparisons: really, these are just questions, no opinions, no analysis (no “proof” required). I guess I do refer to a few “facts” such as the grain companies wanting to tender for this grain so they could pass on premiums to producers. On that, suggest you simply check around.

On the rest you can take my word for it or not – it really doesn’t matter to me. But it seems to me that the CWB’s answers to my questions are much more important than the questions themselves – or my credentials.

[agstar77]

You are right parsley it really doesn't matter who we get paid by as long as it is the highest price possible. Then again a lot of the arguments anti-CWB people have used has been based on the freedom to choose rather than returns. The way things are now there is little hope that either system will sustain the number of farms we have now. As for value added, the cattle producers have a chance to do their own thing and process their own beef. They are having a very hard time doing it even with government help. It's not likely that grain farmers could band together on their own to set an ethanol plant or would that necessarily be a good thing. The size of ethanol plants could be a little too large. Bio-diesel might be more attractive. I think we have rationalize why we are growing food crops to make bio-diesel or ethanol.

[parsley]

agstar77

"Then again a lot of the arguments anti-CWB people have used has been based on the freedom to choose rather than returns"

We only grow crops to make money and pay our bills. Update the computer. Have a beer. Take a trip. (next guy wants text-messaging, good scotch and fishing at the local lake). That's what makes a good life. Freedom to choose.

And my personal experience has been that with the freedom to choose, there are more choices available to me. I can shop around at the local feedlot. All over Canada. All over the world.

And with more choices available, there can be that perfect choice for me, that is a good match with my buyer. We are made for each other.


Can you see farmers in the future, banding together, with websites, entering in what you want to sell, plus the price you need to make ends meet with some profit built in, with the logistics there, for price discovery for all? Big loads pooled together and sold online every day.

With transportation details, protein details, traceability details,etc. right at the Enter key.

Buyer and seller undisturbed, from our single desks.

Could you function like that,agstar?

Parsley

[agstar77]

Maybe farmers could but I doubt that the railways and grain companies would go along with this idea. They have a lot of money invested in the system and they make their profits from integration. Your idea will probably make sense when two three farm conglomerates control the production, and that day is not far off.

[parsley]

What about pricing the grain FOB farm? Transportation is then offloaded on the buyer.

Parsley