NFU and the CWB

[Jagfarms]

2006-05-26
Author: GWR Ag Network

The National Farmers Union has calculated that marketing and policy benefits of the Canadian Wheat Board. The President of the NFU Stewart Wells says a strong CWB with its single-desk selling advantage is worth $800 million per year to farmers. That amount roughly equals the value of the Crow Benefit that farmers lost in 1995. He says the loss of the Crow is a significant cause of the farm crisis now gripping farmers, adding that loosing the CWB would be equally devastating. According to Wells another important point is that an extra 2 million per day is coming from the marketplace, not from taxpayers. He says anyone trying to destroy the CWB marketing and policy advantages is going to make the Canadian farmers more reliant on tax dollars and farm support programs. The NFU released a fact sheet explaining its calculations and the value of the CWB to farmers. The fact sheet is available by request from nfu@nfu.ca and will soon be posted on their website. The NFU’s fact sheet includes a mail-in card addressed to Canadian Minister of Agriculture Chuck Strahl. The card tells the Minister that “the dual market is a delusion” and that “the only real choice is between the CWB and a US-style open market controlled by Cargill and the other grain companies. It tells Strahl: “Hands off the CWB!”

[northfarmer]

If there math was not voodoo math, they would publish there findings and facts instead of releasing them on request....all I know is that milling wheat markets are in the top 5 to 10 percent of their trading range over the last 30 years and I cannot get either a competitive price or basis for my crop...and to add insult they take their profits from our cash pricing contracts from the past crop year and fill the contingency and pool accounts....

I asked my board rep a bunch of my questions. I asked whether the board was selling our next years crops into the rally....his reply was it was Board policy not to sell uncontracted grain....they do not speculate....well by not forward sellling the grain they will eventaully have to market they are infact speculating, and breaking the biggest rule of diciplined grain marketing...that is selling into the rally and not the collapse

....then I got the whole forex crap about why the basis is widening....i asked him if the brains in Wpg ever heard of foreign currency arbritrage....

[charliep]

As an interesting note, the benefit shown is about $40/tonne ($800 mln divided by about 20 mln tonnes of total pool volumes).

I note the relationship shown between US and CWB pricing shown on the daily pricing contracts/CWB returns.

http://www.cwb.ca/public/en/contracts/ppo_workbook/pdf/2005-06/2005-06dpc.pdf

[charliep]

Fact sheet referred to can be found below.

http://nfu.ca/etc/documents/The_CWB_What_s_it_Worth_FINAL.pdf

[chaffmeister]

I remain amazed that the Kraft, Furtan, Tyrchniewicz study keeps popping up. It was considered flawed at the time and nothing has changed. Same goes for the Schmitz, Gray, Schmitz, and Storey barley analysis.

If you really listen closely, you will hear the CWB say that the only wheat market that they can get premiums from is Japan – and maybe Warburtons. Total of about 1 million tonnes annually. The balance is basically sold at “market” values. There is no way any rational person would actually believe that the CWB can capture $212 million in annual premiums on wheat. Same goes for the $72 million on barley.

If the CWB was in fact really doing such a great job, don’t you think it would be eager to publicly PROVE it instead of relying on academic studies using “data” that is cloaked in secrecy. It’s hard to imagine there would even be a “CWB debate” if this performance was real.

Interest earnings – yup, OK, its there – recorded in the Annual Report. But so is the admin overhead of the CWB. And even though the NFU compares the interest revenue to the admin of the CWB, for some reason it doesn’t include the admin costs in its analysis.

Transportation – rebates, tendering, etc. – the CWB “saves” about $43 million. I’ve sad it before – the CWB system is very profitable to the grain handlers. Tendering, etc simply forces them to compete more aggressively for some CWB business. Getting the CWB out of transportation completely would lead to increased competition on all CWB grain business – savings would be much larger than $43 million. Put another way – the CWB being involved in transportation is costing farmers big time – the $43 million saved is just getting some – and I mean SOME – of it back.

Transportation freight rates – giving the CWB credit for the revenue cap is just wrong. And to suggest that if allowed, our rates would match US rates is also misguided – Gray & Furtan seem to forget that we have a revenue cap and the rates will not increase that much. Also – I believe they are comparing single car rates – even though virtually all grain from ND and Montana is shipped via 100 car trains (at much lower rates).

Terminal blending - $30 million gain. Should also take into consideration storage paid by the CWB – you can’t blend unless you also accumulate and store. In 2004-05, the CWB paid $64.5 million in storage and another $5.5 million in country inventory financing. A $70 million cost generating $30 million in blending.

Other items the NFU quantified are really small beer – and all of it would be possible without the CWB in grain marketing or transportation. So if you really think the CWB helped you gain $164.6 million by keeping GMO wheat away, and was the farmers’ saviour when it came to freight rates caps, and provides an unknown amount in market development, then keep the CWB around as an advocacy group – just keep it out of marketing and transportation.

[TOM4CWB]

Chaffmeister,

I note that the CWB just moved 10,000t of 03-04 wheat from Montreal to Vancouver. The CWB said that was the only way the sale could be made.

THis is not the first time, either.

Anyone want to take a shot at the extra cost to store, transport, and pay interest/exchange costs on this wheat?

I did not hear any attempt to pass this premium along as a cash premium; on to the farm gate through an offer direct for farm stored, high quality wheat for the Japanese market.

Or did I miss something?

What was the value of this grain sold? Any truthful ideas?

[chaffmeister]

Tom:
Last time this happened, the CWB shipped wheat out of Churchill and Montreal - both to Vancouver. Someone "close" to the situation told me that they had calculated the EXTRA cost was in the neighbourhood of $100 per tonne (mostly freight). The real issue is why the CWB would pay that to the grain handlers and railroads but not offer it to farmers in the way of premiums for new deliveries. My source told me that his company, knowing the shipments were going to happen, offered to tender to supply the sale. This way they could offer premiums to farmers for new deliveries. The answer ws NO because the CWB did not believe that the wheat was available from farmers.

[charliep]

Just curious. If the CWB offered a $100/tonne premium on Japanese 1CWRS 13.5, how many of you could help them out with old crop inventory? I note this is only June and the CWB has another 3 months of supply to source (about 300,000 tonnes) before new crop is in the system. Has to be a better way than moving product to port and them shipping back. If the CWB is going to store to ensure supply security (would question this logic), why not in the prairies in some of the high through condo space - contract to farmers and pay them interest and storage. Even better, identify Japanese quality grade in farmer storage and contract with these farmers/pay carry costs the way they do with malt barley/IP crops.

[TOM4CWB]

Charlie and Chaffmeister;

How much is the loss to "designated area" wheat growers when distortions exist that prevent arbitage to world prices?

If the market in Japan is a premium market... it is not because of the CWB... it IS because of the premium quality needed, and costs in carry to save grain to deliver 12 months a year... year after year.

"Designated area" growers pay to produce the quality; and pay to hold the grain, for what return?

Plus if we want to build bins and hold the grain ourselves... the CWB will not offer us the premium... it will only pay some commercial entity within the CDN system.

It would never do to get our expectations up!

How does the CWB "know" there is no high quality wheat avaliable, from "designated area" wheat growers... unless it offers a fair reflection of real market value?

Is the CWB getting $400/t for this wheat... and isn't this close to the real cost of this grain for the shipment to Japan?

How does having a monopoly that extracts all costs out of their supplier... or send them to jail...

Create a premium price to that supplier?

[wd9]

With canola, a premium market seems to not be realized at the farm gate. Now, does at least the Board realize the premium from Japan, albeit it is pooled, however at least a portion does eventually get back to the farmer.

Unless you can tell me how to extract a premium from canola - excluding specialty canola which is not commodity canola and is used for a different and specific application and is contracted and payed for - I'd almost have to say wheat would have an edge over canola. There are premium canola markets, just the farmer can't get the premiums - or can they?

[TOM4CWB]

WD9,

I would argue that 1CWRS 15px wheat is a specialty product... and IS worthy of a $75/t premium over and above "commodity wheat".

The CWB takes the basis risk, pools it, and charges it to "designated area" growers. "Single Desk" Political ramifications prevent the CWB from offering a different price to me for high quality specialty wheat... than to you. When they do... it is secret and not reported... which prevents market arbitage.

Yet if YOU sell at a $20/t narrower basis... or get a 30/t premium for selling on a certain day to fill a short order... that is just fine with Canola. I find out about this offer... and many times can extract a premium back at my farm gate.

But this is not allowed with wheat... except if you are a favoured grower and allowed to fill Warburtons contracts.

[wd9]

re: fill a short order. This is a premium from an exporter, not from a country, they just happen to be short filling that order - and may not be getting a premium from a country, just trying to fill a contract. It is a premium yes, but specifically, how can you as a farmer capture $$ from another country willing to pay a premium for the canola in your bin? That premium 99.9% of the time goes to the exporter and not the farmer - you won't even know about it.

[TOM4CWB]

WD9,

I look at 2002 and 2003 crops, and see the premium paid to Canola vs Soy. when in 04 and 05 we had bigger and bigger crops... the premium was dropped for commodity Canola because the product was in surplus to the markets we had supplied in 02 and 03. No one HAD to bid up Canola... so they didn't in most cases.

In long term supply agreements we are still paid the premium for our Canola.

We still must do more work... there is no free lunch... value created is normally rewarded... in the Canola market from my experience!

[wd9]

But the question is, does the CWB get the premium and is returned to the farmer from a country if they want Canadian wheat, because they can only buy from the CWB?

Whereas with the other grains and oilseeds, that premium isn't getting back to the farmer because that premium stops and is collected at the exporter level. In the case of the CWB, since it is the exporter, the farmer gets a piece of it.

This seems to be at least one if not the only advantage of the CWB.

[chaffmeister]

Whenever we talk about the CWB’s ability to get premiums and pass them on to farmers, we must also talk about the CWB’s overall sales activities. Premiums that we talk about are slight price advantages over other markets – in the neighbourhood of $10 per tonne, or so I’m told. But wheat prices are dynamic and can change dramatically over a crop year; the CWB may sell when the prices are in a trough – in fact they do. We need to know whether the CWB’s overall sales activity mitigates any premiums it might get on some of its business. My sense is that it does.

As for canola, grain companies don't make a lot handling and trading canola - the data indicates this. (They actually make more handlng CWB wheat...what does that tell you?) If there is are premiums being paid for canola, they get worked into the prices being paid to farmers. If they didn't get back to farmers, then handling margins would be better than they are.