U. of S. Barley Study Released After 2 Years

[charliep]

The document supporting the $59 mln benefit of single desk selling finally released today after 2 years of being held back. You can read and come to your own conclusions.

http://www.kis.usask.ca/CWB_Studies/%20Barley%20report_Feb2005.pdf

I will also note another barley document on the western barley growers association web site.

http://www.wbga.org/ (see bottom page).

This is work coming out of the cereal grain value chain roundtable which represented all members of the value chain. The majority of the report deals with other issues than single desk selling and represented industry (or at barley working group) concensus. There are a number of issues raised around the inefficiencies and problems in the supply chain.

[charliep]

Apologize for work stuff just before Christmas but another interesting new item.

"Australia's ag minister approved applications for the export of 300,000
tonnes of wheat to Iraq by Wheat Australia and 500,000 tonnes of wheat to Indonesia by CBH. These are the first
non-AWB Ltd. wheat exports authorized under the temporary removal of the
AWB's export monopoly."

[HFL]

I Tried to look at it. It appears to be in Chinese on my computer anyways.

[charliep]

HFL

Make sure you have the most update version of Adobe Acrobat.

Am reading through/is deadly boring (brings back too many University memories or lack there of). The reason I highlight is one study that is very academic and is based on price data that no one else has access to. The other is a more mundane description of the issues members of the supply chain face in moving malt and feed barley through the system to meet consumers needs.

I also note the last year of data in the study is 2002/03. I would argue even more structural changes have occurred since then which make the study less relevant. The changes coming with bio fuels (not on the current list of feed stocks) will make barley even less competitive as a cropping alternative. Will have major impacts on western Canadian malt plants. Perhaps the real reason malt plants were built in Montana/Idaho versus here.

[AdamSmith]

Chuckchuck, you seem to place a lot of emphasis on the Barley study. I’ve been reading this and I’ll have to admit I’m unclear about something, maybe you can shed some light and offer me a simple explanation.

On pg 57 of the report, with respect to the Langrangian Formula. L= 9 over a squiggly line with i=1 underneath Pi (Qi) Qi a funny looking n [Qb with a line over it then the 9 over the squggly line with a i=1 under it the Qi (Pi) –Q0 (P0]

Where the funny looking n equals the shadow value that measures the additional revenue accruing to Canada’s Barley producers if they sell one more bushel of Barley at the margin.

Does the slope of the elasticity curve effect the shadow value?

Because this obviously constitutes absolute proof of a price premium and a little discrepancy here might throw the whole study into question.

Thanks

AS

[AdamSmith]

From pg 61

To determine the economic impact of the CWB on Canada’s barley producers, it is necessary to distinguish between the behavior of the cwb and the pricing behavior that would prevail under an alternative marketing system.

Sales data provided by the CWB are used to estimate empirically the prices, quantities and revenue that would have accrued to the average Canadian Barley grower from the introduction of multiple sellers in 95/96 to 03/04 crop years.

---------------------------------------

So basically the study is nothing but 93 pages of pure speculation presented as facts.

The speculation is based on a set of formulas which were created by the authors of the study.

These formulas have not been means tested by anyone else because these authors are the only ones who are given the information from the cwb.

Also the formulas were based on the principle of “the law of one price” now this I believe is also a “law” which the authors also made up out of whole cloth (I’m open to correction about this if I am wrong) in order to glean the results that they were after.

Formulas made up to fit the occasion, Laws made up to fit the occasion based on nothing more than simplistic assumptions.

There’s a reason why this study was never released before now, and to release it now is nothing more than desperation on the cwb’s part.

[chuckChuck]

Adam Smith. For your information the Law of one price was not invented by the Authors.
From Wikipedia, the free encyclopedia
Law of one price

The law of one price is an economic law stated as: "In an efficient market all identical goods must have only one price." The intuition for this law is that all sellers will flock to the highest prevailing price, and all buyers to the lowest current market price. In an efficient market the convergence on one price is instant.

At the CWB, The Board of Directors also see actual sales contracts compared to the competitions prices for each sale.

How else are you going to establish CWB sales performance if you don't use actual sales contract data from the CWB?

[parsley]

Grain Export Cartel 1981
Authors:
Andrew Schmitz U of CA
Alex F. McCalla U of CA
Donald O. Mitchell U of Mich
Colin A. Carter U of Man

I think it could be said that Schmitz mentally fondles the CWB, so the quote originates from a gentler and kinder analysis.

"The study by McCalla and Schmitz (1979a) uses several criteria to evaluate the performance of the Canadian and U.S. systems- producer prices and equity, market shares, price stability, and technological change in grain handling. Their findings suggest that strengths exist in both systems and that it would be extremely difficult to conclude which had the "best" system. More recent studies by Peltier and Anderson (1979) and Food West Resource Consultants (1979) suggest that the American system has outperformed the Canadian one- at least on the basis of a returns-to-producers criterion"

Parsley

[HFL]

Don't bother with these studies. Show us the money.

[chuckChuck]

Parsley, The studies you quote are out of date by 25 years. Interesting but not as relevant to the current debate as a 2005 Barley study. If you care to read Gray et al 2005 you will note that he addresses returns to producers. Carter and Loyns tried to make the case that cost were higher under the CWB system and that returns were lower. Gray points out that Carter and Loyns were attributing costs to the CWB system that were not the responsibility of the CWB. Such as freight rates, elevation tarifs and the variety registration process.

HFL. "Don't bother with these studies. Show us the money" That is exactly what Gray et al are doing in their study. They are establishing what would happen to prices if the CWB loses the single desk. How can you compare what you are getting from the current system if you don't know what will happen under an open market system? Since you can't have an open market and a single desk at the same time you have to model the open market and compare prices. The prices you are getting now may not be what you want but they will be lower in an open market. If you can argue your case with other studies that show the opposite then go ahead, but you will quickly find that the overwhelming evidence is in favour of Gray.

[chuckChuck]

HFL. Further...Is it good management not to try understand the issues raised by this or any other study? Even if you don't agree with results of a study you should try at least to understand the arguments. It only takes a few minutes to read the executive summary. If you are not willing to do even that, then I wish you luck in your farming career because anybody who is not willing to do research and put effort in finding out what is going on beyond their own immediate experience is going to be at a disadvantage to those who are. Ignoring important sources of information because you have already made up your mind reminds me of the old saying that "only fools don't change their mind"

[charliep]

Actually we do have an open market that operates along side the CWB. Its called barley. The price of feed barley today in the open is higher than all CWB markets including malt barley. Schmitz,Schmitz and Gray never addressed this issue except for commenting on volatility.

Looking at the US is also relevant. A high percentage of both the domestic malt market and US sales are priced off Minneapolis malt barley market. Why shouldn't farmers use this as a bench mark for judging CWB performance?

Help me understand today in farmer terms why the CWB is benefit in malt barley. Heres what I see in Alberta - you can tell me where I am wrong.

New malt barley sales to a Alberta malt plant - $4/bu plus. You indicate directors would see this as with anyone with internet access.

CWB SS 2row PRO - $3.25/bu with the price potentially getting closer to $3.50/bu with trucking allowance, protein premium, VIP, some interest/storage, etc. The farmer sees $2.75 to maybe $3/bu at delivery with the promise but no guarantee of a final payment of 50 cents/bu.

Local feed market at least $3/bu.

Your answer may come down to this year and the pooling process. If it is, maybe you can help me understand how the CWB forward contracts barley on behalf of farmers to maltsters when they really do not have control/responsibilty until it is in a bin, a CWB contract has been signed by a farmer and it has been selected by a maltster/exporter.

[AdamSmith]

Chuckchuck, thanks for pointing me to the "law of one price" economic theory.

I googled it. And read (not entirely all the way through) about four different studies where "the law of one price" were used or studied.

Almost all the studies were done with the intent on determining whether law of one price applied to a particular sector of the economy. And if it did, using those formulas to determine how competitive that particular sector was.

There were as many studies that showed where law of one price failed to apply.

"Some pitfalls in the testing law of one price in the commodity markets"

by John Pippenger Llad Phillips
Dept of Economics
UC Santa Barbara

In his research on the US Wheat market and in particular US wheat sales to Japan he discovers that unless a number of things are taken into account like time lag and actual transportation and shipping costs and the use of forward contracts as opposed to spot prices, the law will fail.

The point is they took actual #'s and worked backwards to see if LOP applied. Unless everything was accurate and accounted for the theory failed.

The Usask barley study used LOP with zero knowledge whether LOP applies accuratly.

And to that point, in my opinion it is flawed and of no real consequence.

But I will say this if the authors of the study would put it up for peer review and let other economists like Pippinger have a go at it and if they saw merit in the results, I would consider the study to be recognizable.

But irregardless, I agree with HFL "show me the money" is the only thing that will convince me.

Interesting note. Just got a little brochure from the Brewers Association of Canada and in it they have a chart that shows that Brewers are consitently paying prices higher than farmers see.

This is consistent with what we've been told for some time now.

So the question for the CWB is where has all the extra money gone? Because we all know it isn't ending up in the farmers pockets.

[charliep]

Also interested if you care to comment on the document referenced on the Western Barley Growers Association website. Again, other market signal issues are the main theme/had industry agreement. Supply issues and problems are highlighted.

[Incognito]

"only fools don't change their mind"

ChuckChuck - when you gonna give the computer back to Vader anyways?