NFU and the CWB

[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.

[wd9]

Agreed, premiums are quite small in the first place. My biggest input cost on malt barley for example is elevation! Thing is I don't know what it is for canola, but I'm assuming much less as the competetive factor keeps it low.

Chaff, best guess, if wheat and malt went open market, would grain handlers just make less money, or would handling costs for other grains go up? Seems the cash would have to come from somewhere.

[TOM4CWB]

WD9,

I don't think it is a simple, we'il get the premium... or we won't.

In my years of watching US and Cdn domestic grain traders... they fill the market demand in more than one way.

Back to back sales and hedges that are fully covered on both sides are common... but simple economics drive the private grain trade at times.

This means that majors will sell into a market that covers costs and is profitable at times... when farm supplies can't be bought to fill the sales back to back... like what the CWB does... blending sales and basis.

This tends to cushion market fluctuations to some extent.

If these sales come due... and market fluctuations have not taken hedges into positive sales levels... the major is caught short and must make up the difference to fill the sale.

That's when the premiums show up in the private system... and contingencies pay the farm gate premiums often... not the actual buyer/end user of the product.

Complex, Yes. Is this a form of "pooling" Yes. Do Contingencies suck up "Premiums"... and prevent direct flow through to the farm gate... often yes.

But I don't see the majors rolling in cash from sales of grain... in fact they say they cross subsidise the grain activities from other sectors of the business. Hence cross ties with the value added processors and grain handler collecters... to create stability.

The CWB takes the risk out of this trading... and gives it directly back to "designated area" growers... the other side of the NFU story they refuse admitting that is part of the pricing reality.

WD9... why do you think the likes of ADM and other multi's like the CWB? STABLE prices... with the grower taking all the risk... a lower input cost over the long term for their mills. THe CWB stabilises the market... in the "right" direction for processors.

Which is why domestic crushers always wanted the CWB handling Canola! Lower cost of grain... as the CWB prys it out of growers hands without transparent price signals.

IMHO... this is why the CWB says it can't compete... they don't have the contingencys the Multi-nationals have... to take up the slack, and growers require a flow through of the premium that creates the contingencies to make the private market fluid.

We want it both ways... but can't have it both ways.

Which is why a direct connection with the Value added chain... will often provide premium prices to commodity pricing supply routes. More stability in pricing... less volitility.

Does this make any sense?

[wd9]

Absolutely, well put Tom. Makes me wonder how many countries just 'wait' for the next wheat fire sale because they just know it is coming.