IS the CWB "HOLDING UP" Durum?

[TOM4CWB]

The question of CWB monopoly marketing was front and center in my mind today as I visited with Alberta Premier Ralph Klein.

I received a call from a durum farmer with high quality durum who was beside himself with frustration.

This farmer had not contracted on the A series durum contract, which has been a risk management tool for many years.

We wait until the later contracts so the opportunity to deliver into next year’s pool becomes an option.

This option is one of the few legislative benefits available to help a grain producer manage risk through the CWB pooling accounts.

This option had been available from the beginning of the CWB. For durum, switching pool years, is still the only optional risk management tool available, as the basis and fixed pricing options are not available.

It should not be unreasonable for a farmer to hold off until the B,C,or D contracts as the farmer himself pays all the carrying and storage risk associated with waiting until later in the crop year to deliver this special product.

It however is beyond the power of the CWB’s authority to refuse delivery of grain offered to them, when a ready market is waiting for this grain.

The CWB refused #1 and #2 Durum deliveries on the B Series Durum contracts.

I phoned the CWB and they agreed there is a rumor that they won’t take any C series, and that a serious look would have to be taken whether or not they would accept any D Series high quality durum.

This high quality durum is worth over $7.00/bu, and the CWB refuses to sell it.

WHY?

The CWB says it is “Holding UP” the durum market by withholding our supplies from the market.

What are the effects of this action?

1.The farmers that are required to hold back the durum are not being paid storage, carrying costs, or for risk of spoilage loss. This farmer further has no assurance that when the CWB does decide to market their durum, that a profitable price will be available.

2.When the CWB withholds this high quality durum off the market, we as western “designated area” farmers tell the world that Canada is an unreliable supplier, and are willing to blackmail consumers to force the durum price higher.

3. Other farmers around the world see high prices for durum, much higher than they should be, in relation to the other grains today. This creates a signal that tells everyone else on the planet that can, to grow durum in the next production cycle. Higher production of durum outside Canada is assured for next fall.

4. Now the higher world production of durum lowers the price paid next fall by the CWB.

The high quality durum grower is now dead, because of CWB speculation.

Obviously the durum was not the “designated area” farmers own, but had been expropriated by the CWB NEP (National Expropriation Policy), when the CWB refused to market this durum.

Other exporters contract and fill the void the CWB leaves when it refuses to market all the “designated area” durum offered for sale.

We are again labeled as unreliable suppliers!

Other nation’s farmers reap the benefit of CWB foolishness, and Western Canadian farmers go directly to jail and do not collect $200.00.

Speculation with food products is a foolish idea. If an individual farmer holds back production to cover costs, I do not place this in the category of speculation.

However when prices are already profitable, and the CWB withholds food products from the market against any farmer’s wish, this is not acceptable, and is the worst kind of speculation.

I heard only multi-nationals were guilty of this! I guess not.

The CWB did this speculation in feed barley, and all types of wheat in the spring of 1996. Again in the fall of 1998 the CWB speculated that market prices were going to rise, and were wrong. In the fall of 2000 the CWB speculated on lower grade wheat, and certainly it appears that they lost again.

Will the CWB reject the series C durum contracts?

Has the CWB already triggered too much durum to be grown world wide in the next production cycle?

No one said the CWB had to sell all of this high quality durum tomorrow, you know over the next 8 months would be just fine, wouldn’t it?

Will the CWB market the durum offered them and fulfill their obligations to maximize returns to western Canadian durum growers, by selling the entire special product that will be offered to them through the C and D series contracts?

Shouldn’t it be the individual farmer’s choice whether or not they want to withhold from the market or sell their grain?

What good does a single desk monopoly do, when it is often guilty of “holding up” and robbing Western Canadian wheat and barley farmers of well-deserved, profitable livelihoods?

[TOM4CWB]

In the latest CWB pro for 2001-02 the CWB admits that durum could be down $40.00/t.

This is unfair that the CWB would force a farmer to hold durum an extra year and then force them on top to take $40.00/t less!

The CWB's mandate is to market grain for such prices as it considers reasonable with the object of PROMOTING the sale of grain produced in Canada in world markets.(Section 7 CWB Act)

Is do not see anywhere that the CWB is allowed to force farmers to take a loss because they don't feel like marketing the grain offered to them this year.

What about offering an exemption like Ontario does, then watch that grain ALL get sold, no problem!

Can't is a state of mind!

CWB staff don't go hungry if they refuse to market our grain, but obviously some farmers will be destroyed if they continue with their plan.

What about this CWB?

[charliep]

I will leave Tom Halpenny to respond but just to highlight the fundamentals.

1) Canada has a lot of durum for sale this year. Carryovers are likely to be in the 2.2 to 2.5 MMT range. A 1 MMT July 31 carryover is small, 1.5 MMT is normal, 2 MMT is big. Most of this carryover will be in the lower grades.

2) Canada is 55 % of world durum trade. Net out US and EU durum imports of high quality Canadian durum and we are closer to 70 %.

3) Durums main uses are pasta and coucous around the world. A major challenge is to grow markets with a success story being S. America/increased pasta demand. The industry needs to grow this market more/find other products. Durum tends to be a grain with a very set demand with N. Africa being the wild card that changes export opportunities. Produce less than world needs and prices rally nicely. Produce more than the world needs and prices drop.

4) You stipulate quality but you are not specific about. Quality is absolutely critical in durum markets with most mills requiring 13 % protein with a bare minimum of 12 % - nobody likes limp pasta made from lower protein (exception may be Kraft dinner type macaroni). Western Canadian supplies of higher protein/quality durum so if I were a poker player, this durum will get accepted on the C or D series - that is 1/2 CWAD with 13 % protein or better. If it is a lower protein 1 or 2, there will be some accepted but also a lot carried on farms into 01/02.

Your point and other points in discussions are about whether the market should manage access to sales/price or an organzation. I will leave this to others to discuss - good job to date. What I am trying to do is highlight things aren't necessarily as simple as one might think. A comment on durum is that lower price won't necessarily stimulate demand - it is market with set needs/volumes required. My suspicion is that trying to push an extra 500,000 to 1 MMT of durum onto the world market would likely have a fairly devastating impact on prices. The good side is that durum would find new uses/homes where it hasn't been before - potential to grow the market but at a cost of lower prices.

Others thoughts.

[TOM4CWB]

Good thoughts Charlie!

The interesting part of all this is that the CWB ACCEPTED all the #3, 4, and 5 Durum offered on the B series contract by farmers, but REJECTED the highest quality #1 and 2.

The CWB is saying publically that they do not want any more high quality durum this year, that there is no market for it! We all know this is simply NOT TRUE!

If no-cost export licenses were given for this high-grade durum, everyone knows it could be sold in a second, at today’s prices!

If this product is so hard to sell, why not let the US grain companies sit on it and speculate with it?

In the scheme of things there is an insignificant amount of good high-grade durum left uncommitted, that “designated area” farmers are willing to sell now, anyway.

If Western Canadian Farmers as a group want to sit on this high grade durum and speculate with it, then the CWB must be responsible for the speculative move and do this at the risk of the pool, instead of some farmer that is now going to have his farm placed in problems.

This leaves the question to be asked however, why must Western Canadian farmers be forced into being speculators when we have so much risk just getting these special products into our bins in good shape?

If the CWB wants to hold back supplies of high quality durum to make next crop year’s durum marketing easier, doesn’t this further place an obligation on the CWB to buy this special product, now?

Why must some individual farm be placed in an unfortunate circumstance, and everyone else gain a benefit from this misfortune?

Is this a REASONABLE AND FAIR use of CWB power?

[charliep]

Thanks for pointing out Tom. The only thing that is a little is they didn't accept 3 CWAD. (100 % 4 and 5 CWAD on B series. zero everything else). A person would have to have a closer look at the CWB sales program to know why. I still think that high protein 1 and 2 CWAD will move by year end.

[parsley]

I'm a little suspicious. Could it be that the fellows that had top notch durum, and didn't offer it when the CWB really wanted it, is now being "taught a lesson" by CWB marketing staff. Much the same as any grain companies that get a little adventuresome....the CWB comes down hard on them in nasty, quiet little ways. Like no cars.

Always of course, in ways that affect the "bad kids" bottom line.

Parsley

[TOM4CWB]

Charlie,

I get really suspicious when the CWB offers to take the lowest quality durum, and then says there is no market for the high quality product.

It means one of two things,

1. The low quality product is being sold at such a discount that it is profitable to replace high quality product and still make more money, after getting less money for the end product that has been produced.

2. The High quality products are over priced and this is causing the substitution down to lower quality inputs.


Has the CWB really got a handle on the consumer's taste buds, and their pocket books, because these are really the people the CWB is playing chicken with!

This is a very complex marketing issue, and I would like the CWB consumer information that shows the CWB can:

1. Sustain the higher durum prices, my info shows they are not sustainable, as higher prices solve higher prices. The PRO says as much as $40./t lower, which shows what the CWB is doing in their marketing plan is unsustainable!

2. That these higher prices actually will not cause consumers to switch to another product that is less expensive, therefore reducing consumption and increasing the supply of avaliable product by not consuming as much.

Of course it is usually a combination of these two factors! Marketing adds to this plan, as the people marketing these products also determine consumption.

Specials, marketing investments in advertizing and all the other costs of maintaining and increasing market share, and yes return on investment for these folks for providing these services, and how willing they are to buying into CWB plans to "hold up" the durum market are all part of this issue.

Frankly do you think Western Canadian Durum farmers are going to be really pleased when they see the long term results of the CWB's "holding up" of the durum market this year?

Isn't the most likely result higher production, lower consumption, and therefore much lower prices in the long term?

[charliep]

Again it is hard to comment on a CWB sales program without knowing more about objectives/battle plan. The fact that the CWB is taking lower grades could be an indication there isn't that much of these grades in the country. They may be trying to pull these supplies into the elevator system separately so it doesn't get blended with higher grades later on. The CWB may see blending opportunities with higher grades in Vancouver/Thunder Bay (a controlled blending process in terminal position produces a more consistent product). The CWB may have markets that are seeking this grade of durum. finally, it may be a corporate decision to move lower quality end and keep the higher end in the bin (similar to what many farm managers do with feedgrain).

[parsley]

For heavens sakes, the man has first class durum and the world wants to buy it, and you're mothering the Board!
Analyse charliep, analyse!
Parsley

[parsley]

Hang on parsley - speaking of analysing …

World trade in durum is forecast at about 6.9 million tonnes this year in total, and Canada is forecast to export almost 4 million tonnes of that. Canada’s carryout for 2000-2001 is forecast significantly higher than last year, by about 40-50% higher, despite our export numbers being up slightly from last year. Considering that you have to look back a few years to find a significantly higher trade number, is it logical to assume that we can push our durum to the market and someone will take it? That doesn’t sound like astute marketing to me, and it isn’t the case. Millers need a market to send their production to. They don’t have abundant storage, and storage is expensive.

Part of the question rests with the markets that durum will be going to and the import demand (for example, crop conditions in North Africa and European durum areas look pretty good at the moment) and what amount does the CWB have available to service those markets from the Series A and early crop year delivery calls? So, is the CWB continuing to make sales of high quality durum? Yes, and it is drawing stocks from the commitments made by farmers on the Series A. Could the CWB guarantee any additional delivery opportunity to farmers beyond the commitment to Series A contract holders? Not at this time.

Remember there was acceptance of high quality durum on the Series A, and that Series is always by far and away the highest amount sign up. Those commitments have to have a market destination before we can take a look at what is offered on later series. The way the durum market, and quantities farmers have offered, have shaped up so far this year, the CWB couldn’t make any further guarantees. So don’t make the false assumption that zero acceptance means the CWB is out of the market - rather it is a reflection of the imbalance of the amount of grain offered versus the import demand from other countries.

I know this is not any consolation for the farmer who waited to sign Series B high quality durum, but at the same time, we indicated early on in the crop year in the grain marketing report to producers that we anticipated an increased carryout of durum this year. Farmers make their choices of when to offer their tonnes to the CWB, and in thinly traded markets like durum on a year when total world exporter stocks have risen substantially, there is some risk involved with that strategy as we’ve seen.

Tom

[TOM4CWB]

Hold it just a minute thalpenny,

I thought we put this to bed in 1996(the Feed Barley Series C thing)!

There in nothing in the CWB legislation that allows the CWB to restrict sales of durum for the purposes you state above.

I am sure if no-cost export licenses were issued, the farmers you rejected could find sales for their durum, am I not right?

Now,

The present CWB as it is structured today, never did have the right to hold back sales to protect pooling accounts.

What you really misunderstand is, that farmers corporately are responsible to restrict their offering of durum to the international market, BEFORE they offer it to the CWB, if they feel it necessary to speculate and hold for a higher price.

Only durum farmers themselves individually have the right to make this marketing decision, and then for their own farm only.

Pursuant to section 18. (1) if the Governor in Council gave a specific instruction ordering the CWB to hold back sales to protect the pooling accounts, and passed regulations to this effect, then the CWB could hold back sales to protect the pooling accounts.

If the Governor in Council passes this type of regulation, it then has an obligation to gazette the said regulation, and add it to the CWB Regulations. To this point this has not been done.

Now we look at the specific CWB Act pricing instructions.

The CWB Act, Section 7 on Pricing;

(1) Subject to the regulations, the Corporation SHALL SELL AND DISPOSE OF GRAIN acquired by it pursuant to its operations under this Act for such prices as it considers reasonable WITH THE OBJECT OF PROMOTING THE SALE OF GRAIN produced in Canada in world markets. [emphasis added]

PART II was not written in as a supply restriction mechanism to the international market.

Part II, CONTROL OF ELEVATORS AND RAILWAYS, was intended to restrict supply of the 6 major grains into the grain handling system, so as to facilitate an orderly supply of these 6 different grain products into the grain handling system, then to be forwarded to export sales commitments at port position.

Why?

Because the Canada Grain Act says if an elevator has any room at all, by law it must accept any grain offered to that elevator.

CWB Act PART II DELIVERY OF GRAIN, Section 24. (1) Notwithstanding anything in the Canada grain Act… could it not be clearer, that this is the purpose of Part II?

Part III, INTERPROVINCIAL AND EXPORT MARKETING OF WHEAT BY THE CORPORATION, does not give the CWB permission to restrict marketing activities to “hold up pool values”.

If a farmer offers durum for sale, and if the grain handling system has the capacity to deliver this grain to a customer, then the CWB has an obligation under law to sell this durum product to a customer.

This gives equal access to the market, for anyone who chooses to offer their durum to the CWB, and is one of the few rights all producers are to have under the CWB Act.

If 100% of the durum grown in western Canada is offered to the CWB, and the CWB can find someone to take this durum for such prices as it considers reasonable WITH THE OBJECT OF PROMOTING THE SALE OF this DURUM, then the CWB has an obligation to market this durum.

Jake Hoeppener took this CWB duty of care issue all the way to the Supreme Court of Canada. The CWB has no duty in law to maximize the returns of producers in the pooling accounts.

The CWB Act is very complicated I know, however you and the CWB must understand this statute, or this marketing system WILL NOT SURVIVE.

At least when the CWB Commissioners in 1996 understood the law, they corrected their actions!

Will the Elected and Appointed directors do what the law requires?

Can directors, working part time, really understand all these complicated issues?

Truly,
TOM4CWB