Deciding on the CWB

[MBFarmer1]

HI guys, I have been following and posting on this board for a while. I have come to respect, if not always agree with, many of the regular posters here as well informed, forward thinking farmers. As such I come looking for a few answers. I have followed farm politics for a little while but have steered very clear of the CWB debate mainly because I didn't have well developed opinion on it. My formal education in basic economics tells me that anytime there is a monopoly working on your behalf you can exert market power, control supply to a degree, and create a higher price. In the real world though I see many farmers that are unhappy with the CWB and feel that they could do a better job of marketng. In my own experience, living as close to the US border as I do, I have seen marketing opportunities I could have taken advantage of lost because of the the CWB, but have in certain years I have also benefited from the CWB pricing contracts (fixed price, basis). In terms of info out there to help guide my decision all I really see is rhetoric from both sides. The CWB and its supporters say they can do no wrong. I take this with a grain of salt. The line companies and non CWB supporters say the CWB can do no right. I also take this with a grain of salt. Is there any real concrete info out there on this subject from a non biased source? At the end of the year how much does the CWB gain us per tonne, if any? For those of you who are not supportive of the CWB what experiences and concrete examples can you share that have led you to your position? On the other side? Thanks to all who reply!

[chaffmeister]

MBFarmer1: I have developed some fairly strong opinions about the CWB over the years but I don’t have an agenda nor am I biased. There are people within the CWB that I know for certain believe I am a CWB-basher but others understand that I simply want to cut through the BS to get a clear picture of the CWB. I have often said to the CWB – both staff and directors – if you PROVE you’re providing value, I would be the first to publicly sing your praises. So far, I can’t. I haven’t seen the proof.

So here are some thoughts on CWB marketing:

Don’t try to make sense of the CWB using formal economics. First, the CWB is not a monopoly in any shape or form. It is a monopsony – the sole buyer of export wheat and barley from the “designated area”. It cannot exert market power on the global markets (last I looked it had less than 20% market share in global wheat markets). They don’t hold grain off the market (to raise prices) as they need to sell when the buyers are buying and they need to take system capacity into consideration. Just ask ‘em.

The CWB is subject to the vagaries of the marketplace as much as any other seller. It has no silver bullet to avoid selling into low priced markets or to ensure it sells only into high priced markets. At best it gets you average prices (part of its “risk management”); some studies have shown that it doesn’t even do that. Any premiums must come from something else.

The pooling system is flawed. In a downtrending market, the CWB has a disincentive to sell additional grain at lower prices if it would erode the PRO – regardless of the effect on farm finances (on the other hand, you may be quite anxious to sell even at lower prices because you need to generate cash flow).

The CWB comes at a cost. It remains unclear that it covers these costs with marketing performance and/or higher prices.

Last time I was “informed”, the Accredited Exporters were responsible for most sales of CWB grain. Someone should ask Vader to find out what the actual proportion is now.

While we’re at it, the CWB should come clean regarding under-cutting AE’s that have developed new markets. (How can it get a premium when it’s willing to sell below what has been determineed to be the market price?)

Check out a study done for the Alberta govt on the CWB and barley. A lot of interesting stuff about CWB barley marketing that the CWB has never responded to. It can be found at http://www.choicematters.gov.ab.ca/files/pdf/Barley_Study_April_04.pdf

The CWB likely does a good job at market development. But we don’t have any way of knowing.

The CWB seems to see itself as a farmers’ advocate. But does it need to be a marketer of grain to do that?

There are many other issues that we could discuss but this is a start. Another that desperately needs to be addressed is what I would call "commerical relations" - it would be valuable to be able to assess how much the CWB is costing producers due to their adversarial relationship with the grain trade.

[liberty]

One thing to remember when assessing the CWB is its claim that it captures valuable "premiums". It's important to make a distinction between a premium for the CWB and a premium for farmers. There's often a big difference.

To use but one example, the CWB likes to claim that it saves a great deal of money, and therefore can achieve greater premiums, because it doesn't have to take the risk of buying up grain prior to a sale and then storing it until the sale actually goes through. But since the farmer is the one who has to buy and build the storage facilities, the CWB is just offloading risk and cost onto the backs of captive farmers. There's no premium to be had at the farm gate, which is the point at which premiums truly matter.

[charliep]

MBFarmer1

Maybe I will turn the question around a bit.

How will you market and price your crops 5 to 10 years from now?

What information flow and services will you need from your supply chain partners to ensure you are meeting customer needs/achieving your businesses profit objectives?

Assuming farmers want some form of CWB, what products and services will it offer that will be most beneficial to your business? What structure and governace will it have?

[bobn]

liberty,

"CWB likes to claim that it saves a great deal of money, and therefore can achieve greater premiums, because it doesn't have to take the risk of buying up grain prior to a sale and then storing it until the sale actually goes through."

Good point! today I heard of a local farmer having 70,000 bushels of CWB grain rejected after sitting in a pile too long. Most piles in this region have had anywhere from 3-4" of rain on them if not covered and are spoiled. Covered piles are thick with bugs and spoiling too. This massive value loss won't show up on CWB books. Again farmers have taken a loss as a result of an over-regulated grain industry. In the mid-western USA market forces ensure that grain gets moved when necessary and few farms need to even store their own grain.

[almoy]

In this area there are huge piles of spoiled peas also. Is the CWB to be blamed for them also ?

[bobn]

almoy,

At least the owner had an opportunity to sell the peas and deliver to a buyer of his choice before they spoiled. Not the case for CWB grains.
We have delivered 100% of all non-board grains sold but 0% of our board grain sold on the 'A' contract. Without the CWB and 'Big Brother' government thinking, railways might have had an incentive to haul grain in a more timely fashion. The railway earnings 'cap' seems to be working quite well, keeping a cap on deliveries as well. What were they thinking when they put that legislation in place? I suppose you were in favor of that too? An open border could have meant movement by truck as a safety valve at least.

[TOM4CWB]

Incognito;

How on earth can the CWB justify these PRO's?

Is the CWB now on the hook for a massive penalty because we don't have enough high quality grain to meet sales... and now MUST pay massive penalties.... which in turn cause PRO's to drop like a stone?

I have some indication from Farmtech afterhour early morning discussions that the CWB has a massive problem.

What is really going on?

[furrowtickler]

tom4:
All the "higher" quality wheat is sitting in the bins or on the ground. Look at some of the other posts , the quality wheat is out there and nobody is calling for it. I agree what the h*** is going on?

[Incognito]

Only someone on the inside is going to be able to answer that question Tom and Furrow.

One of the line items you should be requesting in the CWB annual report is sales not executed and defereed to the next pooling year.

You may be still paying for the 2002 drought, the 2003 frost in the NW and the 2004 frost in AB and SK.

How many CWRS sales have been rolled forward to Japan and for how long? Not only that, those sales were made at a dollar substantially lower than it is today. Were the FOREX hedges lifted and rehedged?

Chaffmeister will give you better detail on the FOREX risk.


Best,

[IAMTHEMOLE]

There is no room wheat because they are too focussed on stealing everyones canola.

[parsley]

Bread and Butter Reasons:


1. Kirk and Ila Torkelson farm organically at Beaubier, Saskatchewan, and in Nov. 2002, found a market for two truckloads of wheat in the American organic market. He needed the money.

If Torkelson lived in Ontario, he would have been granted the required CWB export license, but CWB policy denies licences to Western farmers. and consequently, the CWB wouldn't give him one, saying he must do the buyback. He balked.

The CWB in writing,convinced Torkelson, stating he should get a $8,900 final payment.

He paid $1,430 to do the buyback.

Thirteen months! after his buyback, Torkelson received a bill from the CWB for $4,630, increasing his buyback cost to $6,060, or 30% of the gross income from his sale, with the only
service being rendered was to issue an export licence.

When Torkelson went public, the CWB's organic marketing specialist (who doesn't market organic grain nor do organic farmers want her to), attacked Torkelson in the Western Producer newspaper saying: "It appears that he wasn't following the pool return outlook and he wasn't keeping abreast of what the market was doing. If he had done that, he would have been more aware.

2. Cyril Stott of Brandon, for example, calculated that he lost $13,500 from his 2002 crop in the bottomless-buyback-hole.

3. No less important, but often overlooked, are the organic sales that are actually lost. Dwayne McGregor farms in Chaplan, Sask., and he blames
the CWB's high buyback as a contributing factor behind his lost sale to Japan.

4. Arnold Schmidt near Maple Creek lost his sale to the U.S. because
of the CWB.

Parsley

[lakenheath]

Something is not right.

[wilb]

Where I am, it seems the only thing the local elevator ever wants to take is #1 HRSW. The poorer grades are all sitting in the bins.

[almoy]

We can't move our No 1 here. They are only buying 2 and 3.