the young farmer and the cwb

[widser]

Where does the young farmer fit in the CWB debate? Here's a perspective about the CWB, a starting farmer and marketing options. Everyone that partakes in this forum knows how much capital investment they have in their farming operation. In order to start farming it means a huge capital investment from younger people who (unless they are very fortunate) have to borrow funds from various financial institutions. In tern, this means healthy capital payments that these institutions request be paid on time. Not to mention the input costs and the retailers who require payment by certain dates. Imagine all of you, on either side of the debate, starting from scratch in today’s economy. A lot has been said of the CWB debate on this forum about price premiums extracted by the CWB which may or may not exist. I read in a local publication that if we lose the CWB it will cost all CWRS growers in our area $5-$10/mt. I wonder how they quantify these premiums. This fall I was forced to pre price a significant amount of canola for "off the combine delivery" both for grain storage reasons and for cash flow reasons. The price of canola has since, most recently, appreciated significantly. However, if I were able to take advantage of the rally in the Minneapolis wheat market this summer (at a reasonable basis and yes I know my monopoly friends will jump all over me here) I can’t help but wonder how things may have been different. Yes, I priced a significant portion of my CWRS crop on the Fixed Price Contract offered by the CWB. Huge BUT here!!! I am still held to the “A series” delivery contract, which essentially is at buyers call. No guarantees of timeliness of movement or even acceptance. A one way contract if there ever was one. But I digress. Hypothetically, I could have accessed these contract highs in a FREE market, possibly for a large portion of my CWRS crop for delivery in September. Therefore, not having to pre-price canola over one year in advance and taking advantage of a market rally. I ask where in this situation is my wheat premium. Clearly the “$5-10/mt” I could theoretically gain from the monopoly was more than offset by the $40-50/mt I didn’t get from the canola market or the agony of waiting for 80% of my CWRS to be called on an “A series” that doesn’t even cover my total fixed price contract tonnes. Not to mention that the profits of my fixed pricing help my neighbours out in the pool account. To me, and call me silly here, but that’s a premium I wouldn’t have needed a monopoly to extract. Or….. would it be better said that I could have extracted this premium without a CWB monopoly? I don’t know the way forward when it comes to a dual market and I do not write this note as if to say I have all of the answers. My uncle is 82 years old and I’ve had this debate with him. The fact remains that he has farmed for over sixty years and neither one of us has sold a bushel of milling wheat outside of the CWB. Neither one of us knows the way forward. This is just one perspective I see that is overlooked.

[rosco]

Widser,
You didn't mention if you took out a CWB cash advance. It's a tax free way to turn board grain into a "cash" crop. I, too, had to sell some canola back in sept. when it was $6.50. I'm not complaining because I had good crops and was out of bins. I wonder, though, would you have writen your post if canola had stayed at $6.50, or is it because the canola price went up that you feel the CWB failed you?

[TOM4CWB]

Widser,

Bless you for trying!

I did the math on the buyback yesterday.

The CWB Buy-back price for 1CWRS 13.5 was $243.28/t

It costs close to $10/t through most "Agents of the CWB" to do buyback paperwork and grading... which by the way is not used except for the CWB.

The PRO is at $218/t yesterday. THis is the same as a month ago.

I note that Malle is flat pricing milling wheat. Here is what he is getting today:

"All wheat at the minute is $245 on farm flat no increments and will have $50-80 frieght on top to get to the enduser" $AU to $CDN is Aprox .885...

Or about $216/tCDN.

Montana is about $200/tCDN. The CWB has about a $10/t advantage in freight over the Montana wheat marketer.

A FPC today nets at farm gate about $218/t - $49/t

or $169/t for a CWRS 1 13.5 farm gate Alberta.

The rest of the world is $40 to 50/t ahead of what the CWB is giving us.

And the CWB buyback cost $10/t agent fees plus the $243/t (port price)... adds right back up to the international price of wheat.

THis little puppy is costing us Billions.

And the "Freinds of the CWB" claim they deserve $10 billion in compensation ($500m/yr capitalised)to end the "single desk"!

How do we bridge this gap?

I worry about getting sugar in my fuel... some folks are so mad at me!

How do we get a resolution when the CWB religion is more important than our next generation's economic survival as grain farmers?

[rsmith]

Tom4cwb
Sometimes I have trouble following your thread, but this one is right on.The world is screaming for wheat but they only accept 80% of #2cwrs even at the lower prices we are receiving???
You always seem to have the facts right ,because I Questioned some in the past and came out red faced. In all the threads here alot of people question your interpretation and line of action but not your facts!!

Mutual friends around here are concerned about rail car allocations and freight costs,but canola basis is $15-20 less than CWB wheat? Any comment?

I've personally had enough,you've got my vote, go for it!!!

[TOM4CWB]

Thanks rsmith!

[furrowtickler]

Widsor, you echo the situation of many of us this fall. I agree, unless the CWB pulls a rabbit out of their,,,,, HRSW is a huge blck mark for them.
Rosco, how many bills can you pay with a cash advance? A low balled Initial price and PRO, leaves a paltry number for cash advance. Does not go very far to pay, machinery pmts, rent, fuel, fert, chem, seed, Land pmts, taxes, hail prems, crop ins.
T4, the more facts you put out the less dart vader and co. dispute. It is becoming clearer all the time. Keep up the good work.

[cropduster]

Soo Tom and Smity when are we going for a drive? "This here`s the Duck and I`m calling all trucks!!"

[rosco]

Furrowtickler,
For me, the cash advance on wheat and barley gives me enough cash to get to Nov and then I can sit down and do my market plan without being held hostage to harvest gluts and forced decisions. As I posted earlier, I doubt Widser would have said anything about selling his canola early had the price not jumped to $8.00. Did any of you market gurus see that coming? I highly doubt it. Yes the price of wheat was jumping this summer and it's next to impossible for us to take advantage of those situations under our current board setup. Again, would everyone have been all over that market, or is just because our hindsight is 20/20 and we now can say we would have?
I sure as hell don't have all the answers, and I know the board has to change to survive in the 21st century, or it will cease to exist. I personally hate how slow the PRO is to respond to world market changes, and I hate how long the federal Gov takes to approve an increse to the initial. 2 months for the last one!! Expect the next one to take even longer as the consevatives will use it as a tool to make the Board look even worse coming into elections.
The board is a leveler. Everyone gets the same price for the same class of grain, minus freight and handeling. T4 talks about the wheat price in Montana being so much higher. How many super bee loads before that price premium is gone? Tom's Wheat? Incognito's? Adamsmiths? Mine? That is a small market. But you know what? It would help, because every bushel that would go to a montana elevator and be sold to some banana republic is a bushel that isn't weighing down our board price. Imagine that you are the board and every november you have a million tonnes of wheat dropped in your lap and you have to go out and move it all, because that is the expectation of farmers. They want their bins empty for next year. They also expect a premium for their grain, because that is what they have been told to expect by the CWB. Victim of their own propaganda Hehe! Because you can't get the best price for every bushel. We all know that. But we expect the CWB to do it. Impossible task. We typically grow too much high quality wheat for the market that is there for it. So the rest of the high quality wheat goes to markets that can't afford to pay what it is worth. Such is the boards predicament.

[Lifer]

"For me, the cash advance on wheat and barley gives me enough cash to get to Nov and then I can sit down and do my market plan "

I suspect the majority of farmers approach marketing the way you have put it. This seems to me to be more of a selling plan approach then a marketing plan.

This approach puts more risk on the farmer. More opportunity potential in a rising market and more loss potential in a falling market.

A marketing plan in my thinking would look at opportunities before planting and over more than one year. Why plant something that you will have to sell at some point without having a market lined up?

I realize that our wheat and barley markets are not set up as well as they could be to be able to grow for a market.

[Lifer]

"For me, the cash advance on wheat and barley gives me enough cash to get to Nov and then I can sit down and do my market plan "

I suspect the majority of farmers approach marketing the way you have put it. This seems to me to be more of a selling plan approach then a marketing plan.

This approach puts more risk on the farmer. More opportunity potential in a rising market and more loss potential in a falling market.

A marketing plan in my thinking would look at opportunities before planting and over more than one year. Why plant something that you will have to sell at some point without having a market lined up?

I realize that our wheat and barley markets are not set up as well as they could be to be able to grow for a market.

[TOM4CWB]

Rosco,

I believe you missed the point on WHAT the world price of wheat is.

It is only the countries with "single desk" monopolies that are $40/t behind the rest of the world.

The price is established in the US... for high quality milling wheat... and they have a pool of 49.3mmt. If the wheat flows through the US... so what... the world price remains the same... the supply is just coming from a different supplier... the total volume avaliable has not changed.

I don't know if you have been watching the stats.... but they are VERY positive.

That the CWB is only taking 80% of our wheat is criminal!

http://www.uswheat.org/USWPublicDocs.nsf/a280b21ba0e2ea9385256f3900554e60/d68969a36e92bdbe85257225006aacb9/$FILE/S&D061109B&W.pdf

World Production 06-07 587mmt down 32mmt from last crop year.

US production down 8mmt.
Ausie prod. Down 14mmt.
World ending stocks down 28mmt from last year.
World ending stocks down 55mmt from the 10 year average.

Stocks Use Ratio at 19%

US average wheat farm gate price for 06-07 $US4.15-4.55...

A big chunk of that is soft winters which sell at a big discout to our Hard Red wheats.

In Fact a case should be made for increased CWB returns, if non-graded CDN wheat were sent south..

As the CWB would be able to sell a higher % of its high quality without dilution from lower price markets because of excess supply.

The CDN grower simply adds the CDN wheat to the US pool of grain... it is diluted to US quality instantly.

This shrinks the Canadian pool of grain making it worth more as there is a smaller supply of the special Canadian quality.

[craig]

Rosco you make some valid points about the CWB being in a predicament. The CWB isn't in a position to use commodity markets for risk manangement and that has become abundantly clear when their prices are not reflective of open market prices. While CWB values maybe more reflective of actual export sales over the year, they deny producers the opportunity to participate in higher returns at certain points during the crop year. I have always felt that as a marketer I am in the best situation to make decisions about what is best for my farm. I know what my cash flow needs are and I have some concept of what my actual production costs are.I would also suggest that I don't always make the right decisions but as farmer that comes from the territory.I have thousands of decisions to make every year and they won't all be right. The importance is to learn from the mistakes and do it better next time.
Your viewpoint re Montana prices are different from mine. I have no particular desire to deliver grain to Montana but at the same time their prices are a benchmark with which to compare. If we assume that all grain sold in the world market is done in basically a free market economy,we would assume that market prices in the U.S. are somewhat reflective of those values with basis taken off. Montana prices this year indicate a few different things. One, the market is price sensitive. At low world values there might be a reasonably large market for high quality wheat. At high world values those markets shrink considerably. When there is a volatile futures market, the open market can capture higher values because companies still have the ability to pass risk onto someone else. The CWB does not have that ability or if it does chooses not to exercise that right. The peril of using the Futures market by a single desk has been proven in Australia this year.
The end result is that the CWB's hands are tied and while they maybe doing the best job they can, it is not reflected in the prices you get. The one area that the Board can be criticized on is the producer payment options. The board could have let producers capture the true futures gains in the market and that segment of the producers would have had been reasonably happy. The downside which the CWB seems to think is important is that it might have put pool returns in poor light. Therefore we get the watered down version which basically limits returns and ultimately keeps values in line with the PRO's. Producers are starting to realize that while the PPO's might make you feel warm and fuzzy, in most instances they are not reflective of an open market.
Finally personally I do not like cash advances. They tend to remove you from the market and sometimes give you a sense of having more than you really do. Guess I still come from old school where you make your money when you sell.

[rosco]

Lifer,
yeah I suppose that I am more of a "sell what I have" rather than "grow what I have already sold" kind of marketer. 2002 left a bad taste in may mouth. Everyone who had to buy back barley contracts that year raise their hand! Forward pricing out too far can be pretty dangerous. Look at the AWB. They went and forward priced a big chunk of a typical Aus crop at what they probably thought was a good price, and then mother nature bit them in the ass. They did what the free-market crowd here in Canada wants to have the ability to do, and look what happened. I will be the first to say that forward pricing is a good risk management tool, but for me, only in small doses until the crop is starting to ripen.
Tom,
I have no doubt of your numbers, the wheat market looks good. Yes, the %80 acceptance is not good. Yes, the initial is too low. And yes, the Feds are too slow to approve an increase to the initial. Why don't you phone up your conservative hacks and get them moving on this issue, if they really give a damn about agriculture. On Nov. 3rd the board submitted a notice to increase the initial to the Feds. How much do you think the board asked for? What do you think the Feds will approve?
Craig,
Yes the montana price is a good measuring stick for us. Not every farmer will sell there if they get the opportunity, but the option may be what's needed to get the board to perform. I agree about PPO's. By tying them to the pool, It means that an individual can't make the board look bad by doing a good job. Although, I'm guessing that the fact that the contingency fund is already at $50M means that marketers using the "watered down" PPO's are still making more money than they are losing. Would that be a correct assessment?

[cottonpicken]

Rosco, havent you heard,one month ago selling 7% of nov07 canola was a smart hedge.

[TOM4CWB]

Rosco,

The initials are not a big issue with me. If I need quick cash I can do a EPO, take an interest free advance on my canola...

THe problem is really what is the CWB doing with the pool accounts?

I see a relatively small amount of this years crop sold in the pool... yet such a low price on the PRO... it makes no sense. I am told the CWB is being very self diciplined in selling a set % each month... yet they are sure the present prices cannot last that they are discounting the PRO price?

If these prices cannot last... then more cash prices should be allowed if growers need to make sales at these world prices... allow growers the decision.

The CWB forced many growers into sales with PPO contracts in October... because of the Nov 1 cutoff. This was an arbitrary line in the marketing year... as was the July 22 DPC cutoff. THe whole CWB program is to make the CWB comfortable... and the grower take all the risk.

It is our grain... and our risk and money... we need to operate outside the pool system with pure cash signals to drive price transparency down to the farm gate.