New CWB Initials rip off Fixed Price Contract Farmers

[TOM4CWB]

In checking the spreads that establish the basis for the CWB CWRS Fixed Price Contracts (FPC) the new initial prices significantly widen the spread between a #1CWRS 13.5 and the lower grade CWRS wheats. Please note that the Producer Direct buyback spread between #1CWRS 13.5 and #3 13.0 CWRS price is only $8.01/tonne, but the initial price spread that determines the basis discount for the FPC is a wopping $32.75/tonne. Further the spread between #1 CWRS 13.5 and #2CWRS 13.5 is now $6.00/tonne in the initials, but only $1.67/tonne in the buy-back, at $202.65 and $200.98 respectively. Isn't it interesting that the buy-back for #1CWRS 13.5 is $202.69 and the PRO is $210/tonne, which means for the third straight year, high grade wheat exports are being subsidized into the US market. #1CWES on the other hand has a buy-back of $209.45/tonne and a PRO of $180/tonne, and Canada Feed is $155.66/tonne with the PRO at $135/tonne. Is this not proof that the Feed mills are extracting at least $20.00/tonne out of Praire wheat farmers when they are given no-cost export licenses?

[parsley]

Maybe the CWB can explain this one

[bbrindle]

I'd like to clarify some things around the fixed price contract and lower grades. I'm not going to comment on the buy-back issue, for now.

Fixed price contracts are based on #1 CWRS 13.5%. When a producer does a FPC then delivers another grade, he receives the initial payment at the elevator for the grade and protein delivered. The CWB then pays the difference between the FPC price and the current initial payment for No. 1 CWRS 13.5%. All deliveries against FPCs are excluded from future CWB pool account payment distributions.

Example:
1. Producer A did a FPC in the spring at $190 for #1 CWRS 13.5%. He harvested #3. If he delivered in October, he would have received an initial of $115 for #3 CWRS at the elevator. Then the CWB would have sent him $40.40 ($190- the current initial for #1 CWRS 13.5% of $149.60). So Producer A would have received a total of $155.90 (based on the Vancouver price) minus freight and handling.

2. Producer B did the same contract at $190 for #1 CWRS 13.5% and harvested #3 too. He delivered the end of December. He would have received an initial of $129 for #3 since he delivered after the initial payments were adjusted. Then the CWB would have sent him $23.25 ($190 - the current initial for #1 CWRS 13.5% of $166.75). Producer B, that delivered later would receive a total of $129 23.25 = $152.25 (based on the Vancouver price) minus freight and handling..

Looking back at old crop initials and PROs and new crop PRO forecasts, these producers might have estimated $32-40/t discount for #3 compared to #1 CWRS. In the end, producer A received $34.10 under his contracted price and producer B received $37.75 under.

Producer A, by delivering earlier when the grade spreads were a little better, received $3.65/t more than Producer B.

That's the mechanics. Where the grade speads come from is a whole other question.

[charliep]

I will have a crack at explaining the reason for differences in spreads between the different grades/markets.

You need to start off with a basic philosophy behind the CWB - that is their ability to differentiate markets and obtain premiums out of some (this should be good for some discussion). The reason for the different spreads between CWB initial/total payments and buyback prices is that CWB wheat is sold into more than the North American market.

The buyback prices (as well as the domestic milling daily price) reflect the actual levels the CWB is able obtain in the North American market. These prices are based off Dark Northern Spring Wheat prices - Minneapolis.

The price differentials for different grades in off shore markets will vary from this depending on the region/country. As an example, medium quality wheat (e.g. 3CWRS) being offered a south American customer would likely be priced competively with US hard red winter wheat out of US gulf ports. The spread the CWB would use in this pricing calculation would be hard red winter wheat prices (wheat type our 3CWRS is sold in competition with) versus dark northern spring wheat prices (similar to our hard red spring wheat).

The buyback price (and for that matter pricing to dometic flour mills/US export sales) have tended to have tighter price spreads between grades and protein levels than the off shore markets.

Picking on todays cash prices, US hard red winter wheat (11 % ptn.) is valued about at US $132/t (loaded ship Gulf of Mexico) versus US dark northern spring wheat (14 % protein) at US $156/t (again loaded into a ship Gulf of Mexico port). Ignoring other quality factors that would influence prices, the spread between 3CWRS and 1CWRS 13.5 % protein would be about US $24/t (approx. Cdn $36/t) based on this spread.

The spreads the CWB uses between grades in initial payments/final payments is a blend of pricing relationships between different grades/proteins/classes in different markets. The pooling process also impacts the spreads as it sales/pricing relationships during the entire price pooling year versus an individual day. A long and perhaps complicated is that you can't look at a spreads in the North American market and apply them to what you see in your total payments/fixed price contracts.

It is hard to put the methodology the CWB uses in developing payment spreads simply. It comes to the very heart of the pooling system, however both from the sell side (determining which markets to sell into and at what volume - I leave out price because this is determined by international wheat prices/competitive pricing with the other exporters) and on the final payment structure (relationships between total payments in diffferent types, grades and proteins of wheat).

I look forward to generating some discussion around the pooling system. An interesting question if the CWB didn't exist and western Canadian farm managers sold into a cash market, would the spreads between different grades and proteins widen or narrow versus the signals that the CWB initial and PRO forecast/final payment structure provides today? What would the impact be on grain flows/direction of shipment both within the North American and world markets?

Charlie P.

[JD_GREEN]

CWB rips us all off. Plain and simple. There is no need for discussion about the CWB, pricing and sales policy. The only need is to chop their sorry asses, and let the private sector have a go at it. The only reason the CWB is still around is that the majority of their support arises from the aging farmers. Not only are they ignorant of the free open market system, they don't need to change. The vast majority of them are farming out their last years with land and equipment paid for. Easy enough to make a buck under that type of scenario. Anybody in agreement?? LOL LOL

[parsley]

Say Charlie, when you start talking about the "very heart of the pooling system" what do you say about the CWB when it has chosen NOT to market or pool all that wheat and barley that makes up the feed loads exported to the USA under the Export Manufactured Feed Agreement? Look under the thread Export Manufactured Feed Agreement, and you will see where I asked Tom Halpenny why the CWB wasn't marketing or pooling all that wheat and barley. I think he hides under the bed when he gets to questions he doesn't want to answer.

Charlie, You say "you need to start off with a basic philosophy behind the CWB..." Hmmm. Most of us have a hard time figuring out what it is. It's one thing for feed mills and another for farmers!

Does the Pool do a buyback when they sell into those cash markets, or are they just issued an export license Charlie? I know farmers are denied the export licenses, What the CWB really does....is grants licenses to the big mills(-no marketing-no pooling) instead of what it says it does (marketing and pooling all wheat and barley) . So which philosophy is the current one?

[parsley]

In response to Parsely, the Manufactured Feed Agreement is available for farmers who wish to process/alter their wheat or barley, and if they agree to the guidelines.

The grade spreads on initial payments represent estimates of the final grade spreads. These can change through the course of the year. Charlie makes a very good point that is often a cause of malcontent such as the above message from JD_Green. When you compare one price on one day in one market to a price that repesents sales to all markets over approximately 15 months, undoubedtly there will be discrepancies.

In light of Charlie's observation, it's an inaccurate assertion on the part of TOM4CWB in the first message that high quality grain is being subsidized into the US. Although the Producer Direct Sales price is the competitive value the CWB can obtain in the US market today, the PRO value is a combination of sales already made, and future sales to ALL markets. It can be influenced by fluctuating currencies, and shifting market and production conditions in other parts of the world.

There have been 8 US trade investigations which have exonerated the CWB. Unfortunately, farmers are currently having to play defense against another malicious and political trade investigation.

Tom

[parsley]

There are several questions that really need addressing. I'm one of those farmers who gets really frustrated when simple things are explained so nobody is able to understand, or when the questions never get answered.

1.lrhm asked in another thread what is the volume of grain that is exported out under the Export Manufactured Feed Agreement/ year. That question yet needs to be answered.

2. Does the EMFA grain go through the buyback or does the CWB simply issue export licenses? lrhm and Parsley both asked this question previously.

3.Why isn't the CWB marketing all this grain that the feed mills are marketing and exportin? This is one question that I really want answered. The CWB has carefully chosen NOT to market this grain by setting up the EMFA. Many want to know why.

4. From looking at the actual EMFA posted on the www.prairiecentre.org
website, the feed mills are simply issued an export license by the CWB (The Warbuton farmers do the buyback though!) However, if there is yet another behind-closed-doors deal and the feed mill grain actually goes through the buyback, is there a special EMFA pooling account? (Is that money shared by produces or feed mills?)

5 Has the CWB published in Grain Matters or other informational literature, the details of the EMFA? Has an effort been made to make producers aware that the program exists? From what a few producers say, even some of the CWB Directors stated that they were completely unaware, until recently, that the EMFA existed. Producers that i have spoken with were generally unaware that the EMFA existed!

6. Has the CWB been helpful and co-operative in supplying producers that have asked for information about the EMFA, with documentation?

It would be very much appreciated if the questions could be answered simply and directly.

May the New Year bring all Agri-villers good health and a wealth of new-found information.

[AppMan]

Good questions Parsley.
Why does the CWB keep secrets and tell lies to farmers. If you check out the
www.prairiecentre.org and their info on CWB and organic grain, you'll see that the CWB tries to tell Organic Farmers that if they granted one of these export licences to Organic Grain, it would require legislative changes. What a pile of crap, I guess they figure if they refer to legislation, it will scare them all off. Or at least make them follow the CWB agenda. Fact is -- Export licences can be granted or denied at will, no legislation required. Farmers would be amazed to find out how much grain is exported by big grain companies.
It really is too bad the single desk monopoly mindset cannot see the damage they are doing to the prairie grain industry. The only money in grain today is in the value add business. A small state like North Dakota has a least a half dozen pasta plants and I think the figure is more like 9 or 10. Our single desk up here in Canada has made sure we have non and if you want to start, well the hurdles are endless and costly forever. Organic farmers are forced to do a buyback to sell their own grain into markets that the CWB do not even know exist, they claim they are protecting the pool account???? These organic farmers are making their own markets and moving mostly small container lots and they have to pay the CWB to do it. Sounds like the mob doesn't it (if you want in the business you have to pay us off first). How much more can we take of this single desk monopoly mentallity before we all go broke.

[parsley]

Charlie and/or/Tom,

These questions still need answering, along with a few others that i didn't repeat:

1.lrhm asked in another thread what is the volume of grain that is exported out under the Export Manufactured Feed Agreement/ year. That question yet
needs to be answered.

2. Does the EMFA grain go through the buyback or does the CWB simply
issue export licenses? lrhm and Parsley both asked this question previously.

3.Why isn't the CWB marketing all this grain that the feed mills are marketing and exporting? This is one question that I really want answered. The CWB has carefully chosen NOT to market this grain by setting up the EMFA. Many want to know why.

Please reply,
Parsley

[lrhm]

Chalie wanted some discussion around pooling versus open marketing of grain. Here's a brainstorm, why don't you give a few of us the opportunity to work on our own outside the pooling system and we will get back to you in five years with the results!! Then we can quit chasing our tails in these round-about arguements in theory on who benefits from what and move forward with some facts. Just a suggestion....you may have heard it before.

[TOM4CWB]

Tom, you just don't get it.

I find it revolting that when I ask the CWB some simple questions, and the only response is; OH YOU TOO COULD RIP OFF THE REST OF WESTERN FARMERS.

Why do we need a government backed monopoly to steal from us, backed by threat of taking our trucks and throwing us in jail?
Mr. Halpenny, I dare you to come to the Alberta Court of Appeal next Monday the 15th in Calgary, and tell us to our faces that we are not before real Judges fighting this immoral monopoly.

Why do you refuse to explain or justify how the CWB comes up with the Buy-back charges it extracts from farmers, but gives free export licenses to feed mills and seed growers, and who else we don't know about yet?

If you or no-one at the CWB can explain why you do what you do, isn't this proof enough that what you are doing is illegal?

[parsley]

Charlie and/or/Tom,

Before these questions get lost again in the maze, I'll ask them again!

1.lrhm asked in another thread what is the volume of grain that is exported out under the Export Manufactured Feed Agreement/ year.

That question yet needs to be answered. Should be really easy statisticss to get.


2. Does the EMFA grain go through the buyback or does the CWB simply
issue export licenses? lrhm and Parsley both asked this question previously.

3.Why isn't the CWB marketing all this grain that the feed mills are marketing and exporting?

This is one question that I really want answered. The CWB has carefully chosen NOT to market this grain by setting up the EMFA. Many want to know why.

I sound very persistent I realize, but these are questions that really need to be answered for all farmers out there.
Parsley

[TOM4CWB]

Why will no one even attempt to explain why #1CWES 12.5 protein buy-backs were higher than #1CWRS 13.5 Buy-backs.

How can this be?

Further when the CWRS buy-back pays a farmer to ship the highest quality wheat out of the country, and into the USA, against NAFTA, why do you call the US trade action wrong?

[chas]

You boys are bogging down in alot of detail that is purely government interference in our market but quess what we will never get rid of their lawyer logic until we can elected enought farmer power into government or the CWB to make the process equal to all. I think you are all whining for a marketing system that the american farmers are operating under. They are worst off than we are. Just talk to some of them on the internet they'll tell you how tough it can get. They can't get an operating loan unless they hedge their crop before seeding, to assure bankers their loans are covered. I don't think we need that type of and industry here. JDGreen your a little wet behind the ears, sharpen your pencil because your in for a ride with your attitude. Chas