The CWB and Rats

[charliep]

Just a note to everyone that I have not meant to be Pro or anti CWB. I simply try to ask questions that try to get people thinking about where we want to be as an industry versus where we are. If we know where we want to be, it will likely be a lot easier to develop a process to get there.

The issues I haven't heard about are our customers and how we are going to do a better job of meeting their needs. I sense the customer is almost yelling at us to say want they want. This could be Dolly barley for feedlots. This could be very specific variety requirements for feed peas to our domesic. Something to replace herrington barley as the disease issue pushes it out of rotations and a marketing program to convince customers of these new varieties merits. Crytal CPS with consistently higher protein that will be more competitive with Aussie standard white wheat in S.E. Asian noodle markets (heavan forbid I would suggest but a part of this developent maybe getting better white CPS wheats). The list goes on and on. We have a lot of alternatives to do this both within the current system and maybe a new one. It could be a hybrid of both. An advantage of Agri-ville is we can be creative in our thinking and get our ideas tested by our peers who feel as passionately about things as we do.

The other I don't here much about is relationships in the industry. We seem to like to bad mouth each other but at the end of the day we need to work together to provide our customers with a consistent quality crop when we say we are going to do it and at a competitive price based on its value. The question for you Parsley is who will you trust/be able to develop a relationship with to move your products forward to the final end user. What signals will you need from the market place to establish you are being treated fairly?

Charlie P.

[TOM4CWB]

Charlie,

I hope you can understand the MYTHS that our friend Tom Halpenny appears to be promoting at the CWB, which I would assume they agree with, are burning in the bottom of our bellies!

I don't have a conflict with any grain company, end-user or other marketer!

Why?

If we don't see eye to eye, we choose to not do business together!

When will the Government of Alberta, and the Government of Canada join together and allow Canada to become a free Country?

Then Charlie, we will be able to engage in what you speak of, get on with our lives and stop being the laughing stocks of the world!

Don't you get the feeling that every one is laughing at us because we choose to refuse freedom of choice?

[chaffmeister]

This is in response to thalpenny's comments that appear to be comparing the costs of moving CWB grain to those of the canola market. The arguments he used have been used by the CWB for years - they were flawed then and they are still. I apologize for the length but there's a lot to cover here.

I take issue with two concepts that were presented.

First, that the costs of the CWB (presented as $2.70 per tonne) are being compared to the variation in the canola basis. I'm not sure why he would compare a static cost with the variation in another, but that's not the real issue. The real issue is that far too often, the CWB tries to suggest that their stated costs are the "CWB basis" and they like to comapre it to the canola basis. The implication made by thalpenny is that the CWB's costs of $2.70 should be compared with the canola basis fluctuating $25. This is not just comparing apples to oranges - it's more like comparing apple pie to orange juice.

First of all, "basis" is a futures market term and it refers only to the difference between futures and cash prices. Period. And this often has little reflection on costs. Calling the cost to move grain from the prairies to Vancouver the basis is terribly misleading. There are additional components that make up the basis that are not simple costs from point A to B.

The canola basis fluctuates in response to supply and demand. True - costs such as freight, handling, cleaning, risk, administration and so on, are captured in the basis, but so is the relative ability of the system to perform.

Perhaps the most influential component on canola basis is stock levels in the elevator system. If stocks are low, the basis will move higher to provide higher prices for farmers (to provide greater incentive to deliver). The market is saying, "I need more canola to satisfy commitments. In addition, since it will move quite quickly, I can pay more for it since it won't get in the way of other business." Alternativley, if stocks are high, basis levels will drop to give less incentive to deliver. The market is basically saying, "I don't need your canola right now. If you sell it to me now, I have higher costs such as storage and opportunity costs, since the canola will sit in the elevator for a longer time." So the price moves lowered through the basis to cover those costs.

Wheat markets also have basis movements. Western Canadian farmers do not see these market signals as the CWB pricing system mutes them. The Initial Price (and PRO) system only reflects the average sales prices. If wheat prices get really strong for some reason, Western Canadian farmers cannot react to this - they can only hope and pray that the CWB is selling on their behalf.

If you want to compare the cost/efficiency of moving CWB wheat to the cost/efficiency of moving canola, in the interests of clearly understanding the situation, let's make sure we compare properly.

Which brings me to the second issue: the cost of the CWB is presented by thalpenny as only the "net marketing and logistics costs and administration of about $2.70/tonne". When looking at the cost of the CWB, more than this needs to be considered, especially when comparing to the canola (non-CWB market).

If the CWB wants to use basis levels to compare, lets's look at everything: apples to apples.

Taken from the CWB's Annual Report for 1998/99: "Direct costs include country carrying charges, terminal storage, demurrage net of despatch earnings, drying charges, depreciation and interest on the CWB hopper cars, and additional freight related to adverse movement to terminals, movement eastward of Thunder Bay into export position, and freight rate changes." In 1998/99 this figure was $149 million.

In addition, according to the CWB Annual Report: "Administrative and general expenses represents the allocation to the pool accounts of the cost of running the CWB." This was $56.6 million.

Total operating costs as reported by the CWB were $133.5 million. This includes the two figures above plus $1.7 million for participation in grain industry organizations and interest earnings of $72.5 milion (which is another issue that needs some clarity).

What this doesn't include is the cost to move grain through the elevator system. This isn't in the CWB financial reports because the CWB doesn't pay for it - however the farmer does. So, add another $10 per tonne for elevation and another $3.50 for cleaning (based on public tariffs submitted to the Canadian Grain Commission). (They vary from company to company, but these are average figures.) On 19.6 million tonnes handled by the CWB, this adds up to an additional $265 million.

The grand total of getting wheat from farm to market in western Canada in 1998/99 was roughly $398 million. On the 19.616 million tonnes of farm receipts reported by the CWB, this equals to just over $20 per tonne.

Now let's look at canola: Export basis is currently about $20 over the futures basis instore Vancouver. Street prices in Alberta are about $20 under the futures including freight (Canbra is closer to $10 under). So, the difference between the price received by farmers and the current export price in Vancouver is about $40 total. However, this includes freight of, say $25. Taking the freight away (so we can compare CWB apples to non-CWB apples) we get $15 per tonne of non-freight costs from farm to export position. This is what should be compared to the CWB's non-freight costs of $20 per tonne.

What about that $72.5 million in interest being earned by the CWB that is included in its direct operating costs? An undisclosed portion of this is a direct payment from the fed govt. going back to sales made to Poland and the USSR in the 80's. Since these customers haven't paid for the grain received back then, the Canadian fed govt is covering the interest exposure through direct payments to the CWB. This is clearly something that the private trade cannot enjoy, so to be fair we should remove it from our calculations regarding costs since really it is a revenue. $72.5 million on 19.6 million tonnes is about $3.70 per tonne benefit. Take this away and the CWB costs are more like $23.70 per tonne.

One last comment regarding thalpenny's reference to canola's basis fluctuation. The main components of canola country-level basis fluctuation are (1) changes in the export basis, and (2) changes in elevator stock levels as mentioned above. On one hand, any change of country basis due to export basis does not reflect a change in "cost" structure. On the other hand, changes to the basis due to near term supply/demand balances (stocks) reflect the real costs of storing canola as opposed to handling it. thalpenny's $20 fluctuation no doubt includes both types of influences.

It doesn't matter how you cut it - comparing real CWB costs to real non-CWB costs is probably not in the best interests of the CWB. In my view, the non-CWB market has the advantage. Now I guess the question is, to cover these higher costs, can the CWB consistently capture enough of a premium over what the private trade and farmers themselves could do on their own?

[parsley]

Very simply put CharlieP:

We already know what we need to do in the chain (new buzzword).

The following already know how to work together:
1. I have worked directly with grain companies and find them extremely good to do business with.
2. I have worked directly with the railroads and find them extremely good to do business with.
3. I work directly with processing companies and find them extremely good to do business with.
4. I work directly with end users...consumers.... year round... and find them extremely good to do business with.
5. I work directly with employees and find that they do their job wonderfully.
6. I work directly with other farmers and find they do their job well and good to do business with .

If the occassion should rise where there are bad folks, I won't do business with them again.

7. I sell farmgate, retail and wholesale,
8. I sell domestic and export

These players work in harmony every day. These players ARE the "chain", yet the present system does not facilitate harmony or wealth creation. CWB and the railroads fighting. Farm groups fighting. Try being a potato farmer in PEI this morning....and try to tell them that governments are innocent in the whole process.

6. I find that governments and government regulators and bureaucrats are out of touch, they try to provide services that are not relevant, that they are self serving and that they often do not tell the truth. And these regulators, and these bureuacrats, have designed agriculture and control agriculture.

And there are some farmers still looking to governments for a cure

What part of the chain should I get changed on my operation CharlieP?
Parsley

[charliep]

I suspect I am not answering the question you would like (I will let others respond) but would suggest that in the long term, this is where all farm managers will be taking their businesses over the next ten years. It is likely that many managers will not want to push their business into the value added/retail levels but they still need to be looking for relationships with other businesses to achieve higher values for their products by meeting specific consumer needs. Thoughts.

[parsley]

Halpenny says, " The premise of some of the questions, decrying the CWB as the cause of economic loss on the Prairies,.......... is mischievous at best and deliberately malicious at worst."


I want to respond to this statement. The readers on Agri-ville can decide for themselves if the the "economic-loss premise" could have some merit.


The following is an exerpt from a document titled

Secret

CABINET WHEAT COMMITTEE

Among those attending attending this December 5, 1946 meeting included:

The Minister of Trade and Commerce, The Minister of Finance, The Minister of Agriculture Mr. J.G Gardiner, The Minister of Mines and Resources as well as assistants and deputies


and the following Canadian Wheat Board people
G.H. McIvor, Chief Commisioner CWB,
O.E. Hunting, Asst Chief Commisioner CWB
W.C.McNamara, Commisioner CWB
H.B. Monk, Solicitor to CWB
Dr. T.W.Grindley, Sect'y to the CWB

Chairman MacKinnon "explained that in the view of the imminent expiration of the National Emergency Transitional Powers Act, it was necessary to consider the form of the legislation which should be introduced in order to provide for the continuing powers of the Canadian wheat Board"

Mr Gardiner "thought it might be very difficult if an attempt were made to introduce permanent legislation for the Wheat Board'

"The Chairman asked Dr. Wilson to outline the problem in connection with the Wheat Board's powers concerning flax"

"Dr Wilson explained that the Wheat Board under its present powers had a monopoly control over flax seed, and was paying producers a fixed price of $3.25 a bushel. (The U.S. price now stood at $7.25 a bushel). It was necessary to decide whether the Board should continue to offer this guaranteed price to producers."
Parsley

[parsley]

If you don't believe that the cabinet documents are authentic, the CWB can check it's own documents on the flax policy. You will find it in the CWB library thalpenny, in a Confidential Document named
MEMORANDUM TO THE WHEAT COMMITTEE OF THE CABINET
FROM THE CANADIAN WHEAT BOARD

It states
"At present, the Board acts as a monopoly handler of flaxseed paying a fixed and final price to producers, basis $3.25 and selling domestically under direction at $2.75"

"The United States price rose to around $7.25 under decontrol and we have refused many applications from producers and others to export flaxseed"


Agri-ville readers can pretend it is 1946 and can ask your very question..... would there be more or less value for farmers without the CWB?

Hindsight is helpful
Parsley

[ianben]

Hi again from England
This disscusion seems to be going round in circles to me so here an unbiased idea
I went back to that cwb site and
clicked visions, This is what came up.
To create value for Prairie farmers by being an innovative world leader in marketing grain.
Now as far as I can see what happened in 46 or yesterday for that matter is history
Its tomorrow that counts.
Innovation. I see no innovation or have I missed it.
World leader? Perhaps many years ago. World leaders today are MEGA. Ford , Fiat, New Holland, Case, Internationl CNH. ICI, Zenica cannot remember the rest they change so quick etc.etc. Unless you are a world leader you will not be taken seriously in any market and cannot create value.
So stop before you get dizzy.
Innovate. Recreate your CWB as a worldwide marketing group without compulsive powers. Invite the rest of the world to join and add value for us all.This is the only way you could influence todays market.
SO IS IT
FARMERS CHAMPION OR GOVERNMENT PUPPET
CARNIVOR OR DINOSAUR.
Now some of you say Chas and I are impatient, well I am.Because the way I see it we are way behind in this game.
The train is waiting in the station bound for San Fernando, I want a first class seat I want the CWB or some other farmer controled organization up there with the driver.
All aboard and we can make something work
Keep arguing and we have missed it.

We have house guests this weekend,so the wife has issued a death threat if I turn on the computer so I will be back Monday to see what you say.
Goodnight Ian

[TOM4CWB]

Ian, I could not agree with you more!

You said:

“Innovate. Recreate your CWB as a worldwide marketing group without compulsive powers. Invite the rest of the world to join and add value for us all.This is the only way you could influence todays market.”

This is music to my ears, and what 70% of Western Canadian grain Producers need,
“the freedom to choose” between working together without compulsive powers, or competing and innovating moving directly up the value chain if necessary, to remain competitive and profitable so the next generation can be wheat growers as well!

Did you know the CWB's plan today is to reduce both Canada’s world wheat market share and the production of wheat over the next five years!

Why would any marketing group (talking about the CWB) want to destroy the industry they were supposed to serve?

[ianben]

Hi Tom
I knew you would like that bit.So due you agree with this?
I said we were behind in the game well I do not think we are even playing yet!
I think they changed the game when the WHAT IF program came out you know the one where you list costs and it works out your profit. In the new game you need a bat and ball to play in the premier league and you ALWAYS win. When you grow GM for Monsanto you are definatly playing with someone from
the premier league. Most chemical companies are up there, so are the machinery manufacturers and I think the fert companies just got promoted. All these products are now priced on what we can afford to pay because they can use WHAT IF in reverse. It is a fact of life we must accept THE GAME HAS ALREADY CHANGED.
We will never be in the premier league and I not sure I would want to be, I have morals too.
I believe there is a lower league where my rat baiter and the man who buys your HEAR **** play. They a least have a bat.
They manage supply to match demand and have realistic prices and happy customers. This is where I think we HAVE TO LEARN TO PLAY.
It is like when we changed from BARTER TO CASH
I bet that took some getting off the ground. It will never work you cannot change the system, BUT SOMEBODY TRIED AND IT DID.
Ian

[TOM4CWB]

Ian,

I agree in principal, however one critical issue remains, the freedom to choose our own destiny!

We all choose what kind of equipment we will use, no monopolies there(although some would say JD is like Microsoft!)

We choose how much fert we put on, and what kind and how much herbicides we will use.

We choose if we will use fungicides, and then all decide which company gives a fair shake on grading quality we harvest.A good truck is the best tool to get this in line(I just bought a set of superbee's yesterday).

Destiny and good fortune is 99% being prepaired to allow someone to give us a fair deal, which means no one goes away rich, but hopefully no one gets ripped off either!

This is respect, something I hope the CWB will plug into, for it is the only hope for a future that is not a dead end.

Does the CWB respect farmers, Grain co's, or Railways?

[ianben]

Hi Tom
Yeah I know what you mean but just how free are we.

When NH and Case feel the need to merge I think the only choice left in that market is colour. It puts the shits up me.

How do you feel about this

When we buy fert we do a test to see what we need.

When we spray we have an agronomist to advise us.

We look at variety trials before we choose what we grow.

We MARKET blind.
I looked up the market report at CWB -

By the end of 2000-01, global wheat ending stocks are forecast to fall 17.5 million tonnes (MT) to 109.9 MT relative to last year, according to the United States Department of Agriculture (USDA), as record world consumption outstrips production for the third consecutive year. Stocks this low haven’t occurred since 1995-96. At that time, the estimated 107.9 MT carried out helped to drive the annual average price for Hard Red Winter (HRW) wheat at the Gulf of Mexico (an indicator of world prices) to a record US$215/t (US$5.85/bu). And the stock-to-use ratio was then estimated at 19.7 per cent. In comparison, the USDA is estimating that the world will only carry out 18.4 per cent of our total annual use this year – a record low! So why haven’t prices rallied?

Is this of any help to me or you? I have never read a market report which gave me specific advice.

This is what I think we need -
By the end of 2000-01, global wheat ending stocks are forecast to fall 17.5 million tonnes (MT) to 109.9 MT relative to last year, according to the United States Department of Agriculture (USDA), as record world consumption outstrips production for the third consecutive year. Stocks this low haven’t occurred since 1995-96. TO MAINTAIN THE PRICE AT US$180 AGAIN THIS YEAR WE RECOMEND YOU MARKET 95% OF YOUR PRODUCT AND SEED SIMILLAR ACRES TO LAST YEAR. FORCAST MARKET FOR NEXT YEAR IS 102%.

It would need trust I know,but we all believe a piece of paper is worth $100.

Has anybody a better idea to take on CNH's in this global market.

Ian