The Real CWB Balance Sheet

[chaffmeister]

Jman – some questions/comments on the crush:

First, I don’t know where you got the $78 crush margins for 2005 – but it’s exactly what you can calculate using the prices on the Canola Council’s website. These are Vancouver prices for seed (instore), meal (FOB) and oil (FOB).

Assuming these are the numbers you used, you shouldn’t further deduct an $8 cash seed basis – it’s already in there. Further, you really should back off the freight back to the crush plant – I don’t know what the rates are but I’m going to guess they’re different for seed, meal and oil and so will make a difference. At a minimum, you should back off the oil and meal from FOB to instore – which would make the calculation about $68 per tonne.

The whole crop isn’t crushed. So if w go with $68/tonne margins, they should be applied on the amount crushed – let’s call it 3.3 mmt. So this would make your calculation $224 million.

I can’t remember the actual number, but I was once told that breakeven – although different for each crusher – was about $35 per tonne. Perhaps someone else can correct this if I’m wrong. If it is right, then we should be talking about the $33 per tonne “profit” – the amount of the margins above breakeven. (Which makes the calculation $109 million.)

Now – although we’re really fishing in the dark here – the question should be, is this reasonable?

Part of the reason why crushers are making money is that they understand how to respond to market signals. Collectively, farmers sell and deliver about 50% of their canola crop before Christmas each year, even though prices are lowest (basis is weakest) then. This is (1) for cash and (2) to avoid storing canola. This is often done while the market is giving all sorts of signals to sell canola on a DDC and store it. The crushers read these signals and built huge storage capacity. So, when you’re selling canola in the fall at $50 under, the crusher is happy to take it and store it.

I’d be willing to suggest that $20 of those crush margins are solely due to early marketings by farmers (depressing basis levels). We really need to find a way for farmers to be in a position to make better marketing decisions. (I recognize that many farmers may be forced to sell at harvest due to cash needs. To me this is the real market villain.)

Jman - what I find curious is that you appear to feel that it’s unacceptable for the crushers to make a margin at all – let alone a profit. I’m not defending excessive profits, but we need to make sure we’re addressing the right issues.

Jman – I appreciate your thoughts on canola – but do you have any thoughts, comments or additions on the CWB balance sheet that started this thread?

[agstar77]

Exactly Adam. Pasta plants and flour mills are high volume low percentage businesses. Only vertically integrated corporations can compete on mass production. Only a few specialty mills can survive not nearly enough to use all the grain in Tom's designated area.

[AdamSmith]

Agstar77, I agree. Western Canada will always export bulk grain, and probably a always a majority share.

But I believe we should still continue to adopt policies which make it easier, not harder for those who do think there is an opportunity to establish value added processing. Would you not agree?

The one thing that must change is the attitude by many farmers to villanize those who are successful at adding value to our grain or our farms. Whether that be a small , medium, or giant multinational business.

It seems to me that many don't understand that whaet really has no value until it has been turned into flour, and flour really has no value until it has been turned into bread, or cookies or cakes or crackers or pasta or whatever else people like to eat.

Wheat farmers need to have, not just good relations, but great relations with all those involved. Yet the whenever the CWB or the NFU demonize the multinationals they are demonizing our literal meal ticket.

Another liability on the CWB balance sheet.

No matter what kind of sweet deals the CWB sales dept. might offer the big multinational vertically intergrated companies, The politicos like Vader and the communiction dept. with their rants against them, can still have negative effects and can cost all of us. No one likes to be constantly trashed and villified. They just say to themselves, "Life's too short to dance with ugly women" and look elswhere.

[agstar77]

We should not demonize Multi's .but .They will work with us as long as they feel they can make more money. Neither should we kiss their butts. Wheat is grown almost universally, very difficult to capture that elusive added value unless you have an edge . Everyone can make bread or pasta. Governments won't let you make a decent return because people{voters) want cheap bread and pasta. We must think outside the box and find unique uses fpr the crops we grow outside the food area. An example is plastic made from oilseeds or other plant materials or cellulose for biodegradeable packing material. The only way this can happen is with investment of that grain subsidy money into small business which can develop these products. I see no future in value added as defined by farmer owned pasta and flour mills. This has nothing to do with freeing up grains from the CWB. If your model doesn't work when you pay the same price for raw product as your competitor, you are doomed.

[chaffmeister]

For outside the box thinking, go to:

http://www.auri.org/
AURI is the Agricultural Utilization Research Institute in Minnesota. Their online newsletter shows all kinds of new and innovative thinking.

http://www.wheatworld.org/pdf/NAWG%20New%20Improved%20Uses%20Report%20Final.pdf
A few years ago National Association of Wheat Growers (NAWG) had a study done on alternative uses for wheat.

Both are US-based - I can't seem to find any similar resources in Canada. Pity.
(Can anyone help me?)

[chaffmeister]

Pooling is based on equity – everyone in the pool gets the same basic price with the only difference being freight and handling charges. The guys with higher “valued” wheat – because of certain quality characteristics or location – share the benefit of these characteristics with the guys in the regions that don’t produce these characteristics. (I’m not talking about grade spex – I’m talking about unique characteristics.)

So Agstar, your premise that “If your model doesn't work when you pay the same price for raw product as your competitor, you are doomed” doesn’t take into account these kind of comparative advantages.

Let’s say you farm around Moose Jaw and you and your neighbours produce durum with some very unique characteristics. Because of your unique combination of growing conditions, altitude, and location, your durum has characteristics that others can’t match. Your durum is truly worth more.

Now say you went to the CWB and said, I have a business plan to process Moose Jaw area durum into a specialty food and extract a premium while doing it. You tell the CWB that the only ones that can produce the raw materials are Moose Jaw area farmers, because of some quirk of nature. But even so, the CWB tells you that you must first sell this special durum into the pool and buy it back at DHC price.

You argue that the only way this will work is if you use Moose Jaw area durum (it’s different remember - you have a comparative advantage) and you see no reason to participate in the pool. You suggest that pooling shouldn’t apply because the premiums you can achieve are not achievable anywhere else – other regions just don’t have the right combination of growing conditions, etc.

The CWB is telling you that, to be fair and equitable, you must share this “premium market” with everyone else growing durum in Western Canada. So even though they can't participate in it, the CWB ensures they gain by it.

You say that it is only fair that you and your neighbours benefit from the value that only you and your neighbours can add. You understand their need for better returns but you feel strongly that the results of your entrepreneurial actions, if shared with others, reduces your incentive and effectively subsidizes those that are not involved in the business.

So it comes down to fair value and who gets it – not the price of the raw materials. In the interest of maintaining the pool, initiative comes in a distant second.

Believe me, business plans are often based on being able to do something better, faster, cheaper than the incumbent competition - it's your comparative advantage. And that includes sourcing raw materials.

The idea of a business plan standing on the premise of paying the same price for your raw materials as every one else fortunately only counts when you’re dealing with the CWB (unfortunately for entrepreneurial farmers and their communities).

[agstar77]

Yes and what happens when your farm with your"special" durum has a crop failure or whats worse the whole area goes crap? Where do you get that special durum? Not as cut and dried as you would have everyone believe. Not only that, most people who have tried this have found they must devote all their time and resources to one or the other not both. Value added only serves us when it provide a market for what we produce that is different and has greater returns than we can get otherwise.

[chaffmeister]

Are you suggesting that the purpose of the CWB policy toward farmer-owned processing is to protect them from climatic disaster?

What do you mean "most people who have trid this"? Who's been able to? Besides, shouldn't people have the right to take these risks if that's what they want to do?

Rewards have their risks. Pooling dilutes the rewards while doing nothing to help with the risks (as you have made clear - "what happens if you have crop failure"); changes the whole risk/reward thing.

Those that are willing to accept the risks should get the rewards.

[agstar77]

There is a reward for a consistency of supply which individuals can't guarantee. All flour mills like to have the same grain for a particular run of production and they are willing to pay a premium for that uniformity. They won't get that from one grower. You may have a special grain but it does not mean any mill wants it.

[parsley]

Agstar, you sound just like the CWB 20 years ago undermining organics, essentially telling organics they would fail and to get out of their face.

"Pasta plants and flour mills are high volume low percentage businesses. Only vertically integrated corporations can compete on mass production."

You want more of the same, complain about more of the same, and are totally negative towards anyone willing to try something different.

agstar the grain-world and their markets have changed, so let's get on with it.

Waist-folding isn't benefitting farmers.

Parsley