CWB Market Canola

[cowman]

I don't think it would be a good idea to have the CWB involved in either bio deisel production or ethanol production. Not sure if they could interfere in ethanol production but there would need to be some assurances that they couldn't hold up the show before any one invested there?
If the federal government legislates blending rules for gasoline and deisel fuel, one way or the other someone is going to produce it...whether it is bought in from the USA or whether the oil companies build the plants or whether farmers set up some sort of facilities? If the farmers don't set up the facilities then who will get the benifits?...I guess we all know the answer to that?
This is basically a new opportunity to benifit from a new industry. I believe it is important for the various levels of government to facilitate the creation of this industry in a way that farmers can benifit instead of multi national oil companys? It is time the government tried to do something for the agricultural industry instead of throwing them a crust of bread when they are starving?

[Vader]

Sorry Chaffmeister, I have been home so little in the last few months. I have not had time to do the research necesary to answer the questions on the other thread and as I said I will start new threads when I do get to them.

On the investment in ethanol or biodiesel, TOM provided the answer. Leadership. The CWB can and will provide the leadership and will direct farmers money into this type of project. I don't think that a new gen co-op is the proper structure for an ethanol plant because of the variety of potential feedstocks. Biodiesel may be different in that the consensus today is that canola will be the desired feedstock. In time other oilseeds such as mustard or camelina may win out.

I was travelling in the US recently and the talk down there is that the ethanol plants are being sold to the big guys after the project pays for itself. They fear that ultimately all the ethanol plants will fall into the hands of non-farmers.

I think that as we venture into farmer owned value added facilities in Canada that governance and business structure will be key. I would venture to say that if the CWB had a controlling interest that it would be highly unlikely that these facilities would be turned over to the big guys. Depending on how the governance was arranged that could be as little as 10%.

To compare this to prairie pasta causes me to doubt your sincerity chaffmeister. The pasta business is overbuilt and there are many bankruptcies in that industry. Prairie Pasta never developed a business plan and took it out on the road for investors to consider. My understanding is that the preliminary investigation showed that the opportunity for profit was quite unattractive. The situation is very much the same when you talk about flour milling or malting. These are mature industries controlled by very large players. If you are going to play in that game you had better have your customers lined up and have very deep pockets.

Ethanol and biodiesel in Canada are fledgling industries. Farmers are in a position to profit from these emerging opportunities.

I would like TOM to explain how he thinks that the CWB could proceed under the existing legislation without the blessing of the Conservative Government.

[chaffmeister]

Vader:

How will the CWB rationalize getting into this kind of venture without 100% support from producers?

It’s unfortunate that farmer-led initiatives in the US are being sold off to non-farmers. But I guess that is their choice and I have to assume they are making sound business decisions.

Regarding pasta I am absolutely sincere. I believe the “plan” was to buy – not build – for the reasons you mentioned. (And yes, there were facilities for sale.) The profit potential had a lot to do with the ultimate purchase price. Not sure why they didn’t take that on the road except maybe the perception that it would be a tough sell; how do you raise money on a venture you can’t really talk about because the seller wouldn’t want details of its sale made public?

Mt point about the CWB’s role (and sincerity) relates to the latter episode where the CWB had said they would facilitate Prairie Pasta’s ownership in Dakota Growers with delivery options, etc only to refuse it at the last minute because their policy didn’t apply to investment in US plants (even though the CWB knew all along that it was for ownership in Dakota Growers).

Tom / Vader: You both know the CWB doesn’t have a monopoly on leadership.

[Vader]

I agree that the CWB does not have a monopoly on leadership. So let the best leader step forth.

[Vader]

A point about the situation with Dakota Growers.

If you are a producer at Weyburn, Saskatchewan, the value of wheat is a function of Minneapolis futures with freight backed off to Weyburn.

If you are a producer at Carrington, North Dakota, the value of wheat is a function of Minneapolis futures with the freight backed off to Carrington.

The freight back off from Minneapolis to Weyburn and the freight back off to Carrington are in the same ball park.

If you transport wheat from Weyburn to Carrington the value changes by the amount of the freight. The question becomes who is willing to pay that freight. Either the farmer has to absorb the freight or the buyer has to raise the price that he is offering to offset the freight. To date there has been no indication that there is a sustainable business model here.

The CWB has never sold wheat to Dakota Growers and in fact it is a rare occasion tht the CWB has sold any wheat to buyers in that "freight disadvantaged" area.

[chaffmeister]

Thanks for the background.

This doesn't explain why the CWB said "yes" through all the negotiations only to say "no" at the last minute.

The CWB has not sold to Dakota Growers because Dakota Growers' new gen coop structure wouldn't allow it.

I believe the relationship with Prairie Pasta was aimed at providing Dakota Growers with access to Canadian durum (through Prairie Pasta members) and providing Canadian durum producers with increased delivery options and investment.

Are there other potential buyers in the "freight disadvantaged" area you talk about? If so, wouldn't selling to them (even with a slight freight disadvantage) be better than not selling anything at all?

Also, how does this fit with the argument that allowing some farmers to have access to this market (just over the US border) would be allowing them to "cherry pick" the best prices/markets? How can these be the "best markets" and "freight disadvantaged" at the same time?

[charliep]

Vader

Why are the freight spreads you mention relevant to a durum grower along the border? His concerns are do I have a delivery opportunity (50 % take on the "A" series) and how does the price I will recieve compare to the projected CWB pool return outlook. If the US market allows them to actually deliver durum and the price is higher, why shouldn't they make this decision with the CWB blessing?

To bring the topic back to the original thought, would you appply these same principles to canola? I assume these same arguements would apply to Velva, North Dakota (both the current ADM plant and the proposed bio diesel ones). Would including a CWB alternative for canola in Manitoba restrict this access?

[TOM4CWB]

Vader;

Amazing.

The CWB will spend how many $$$ on the rail cars, and on supporting the PRCC's purposal?

How many $Hunderds of Millions will be as farmers spent on rail cars?

But I guess the CWB and farmers need no facilities in the new competitive market place. Obviously the CWB knows this, hence have done nothing on handling facilities.

A $60M a year expence... on the CWB... and we get leadership of this Quality?

Unhedged CDN$;

Dropping PRO's;

Unsold grain;

Forced inventory retainment;

ALL who needed to sell other non/off board crops... had the opportunity to do so this crop year.

Can the same be said for CWB marketing?

[wd9]

Thanks Charlie, yes please, let us stay on the question of whether or not the CWB should market canola. This is a very important question and we must stay on track.

[Vader]

How many tonnes of canola find their way from Saskatchewan to Velva? Very very few is my understanding.

Freight issues are real. They form part of the basis. Basis needs to narrow to attract deliveries. In the case of Velva and Carrington there must be some strong incentives to overcome the negative freight issues.

[charliep]

Most of the Velva catchment area would be in Manitoba but there is pull from all of southeastern Saskatchewan - perhaps even more more that St. Agathe is running.

Keeping the topic on canola, lets assume two bio diesel plants are equal freight distance/cost from a final product market. One plant is in a surplus area (lots of canola over and above what the plant will need). The other a deficit area (needs to import canola from other regions). The plant in the surplus area likely could buy canola for cheaper than the one in the deficit with the difference equal to the trucking cost between the two plants (other things equal). The difference in price would be a competitive advantage to locate in the surplus area.

How would a single desk seller price into these two markets? What impact would this have on an industries decision to locate?

[TOM4CWB]

Charlie;

WHy do you bring up the "single desk" issue when IMHO it is not an option?

Or, am I wrong, and you know something I do not Vader/Charlie?

For the CWB to be competitive it needs to market more than wheat and barley.

IMHO Canola bought from the competitive market place seems to be a logical 1st step in the upcoming new CWB marketing environment.

[wd9]

The same thing happens with maltsters. If I have a characteristic the maltsters want I get no added value for it. I get the PRO regardless - like actually having dry grain this year. Investing in drying equipment would have been a good plan, but, the pool takes that advantage away. The fundamental problem with pooling is those who wish to do the extra to make a unique attribute are penalized and those who grow just to barely spec are rewarded.

This would kill the canola industry and the associated dollars in investment. The future of canola is IP, other alternative uses, value added etc and the archaic system of bulk movements with bulk social payments would not improve my bottom line it would hurt it by taking my premium and paying it to those who slip by.

Fine, call me a capitilist.

[cowman]

The reality is this: The CWB is an old socialist/communist system that should and must be done away with in this modern reality? The days of "communism" are over?
Why would anyone in their right mind want to destroy a modern industry with a mindset out of the thirties!
The bio gas industry might very well be destroyed using idiotic ideologies from the depression...but come on this isn't 1933!
The CWB is a dinosaur that needs to be put to bed? The idea that this ineffiecient government agency has any role to play in a new industry is frankly a slap in the face to anyone who values his freedom?

[Vader]

Sorry Charlie, I tend to agree with TOM. I don't see canola functioning under a single desk. I see the CWB marketing canola as an adjunct to its current business. I would see the CWB receiving producer cars of canola and selling it to those same customers that currently purchase wheat and barley. As an "add on" to the single desk I think that the CWB could be very competitive. Just think about how we could spread out our fixed costs.