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Letter From Richard Gray on Malt Barley

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    Letter From Richard Gray on Malt Barley

    single desk works

    Richard Gray

    Source: The StarPhoenix (Saskatoon)
    Date: February 15, 2007
    Edition Name: Final
    Section: Forum
    Page: A11
    Following is the opinion of the writer, a professor of agricultural
    economics at
    the University of Saskatchewan.

    A great deal has been made of high American spot prices for malting barley
    in the United States. Farmers are being led to believe that they would receive
    these higher prices if the Canadian Wheat Board's single desk were
    eliminated. However, this outcome would not occur.

    First of all, the current U.S. barley prices have little to do with the
    average price received by U.S. producers for their 2006 crop.

    U.S. maltsters typically contract for about 80 per cent of their malt
    barley
    needs. These contracts were signed with U.S. producers last spring when
    barley
    prices were much lower. Therefore only a small per cent of U.S. producers
    are
    able to take advantage of the current high spot prices.

    In Canada, producers will receive a pooled price made up of sales made last
    spring averaged with some sales at the current high prices.

    If the single desk powers were removed, the currently high malting barley
    prices
    in North America would quickly fall to prices near feed barley levels.
    While
    Canada is not a large feed grain producer in the world, it is very large in
    malting barley. Canada grows almost three times the quantity of barley that
    the
    U.S. grows.

    Canadian malting barley makes up 20-40 per cent of world malt barley
    exports.
    Most of the barley varieties that producers grow in Western Canada are
    suitable
    for malting, so in most years there are very large supplies of
    malting-quality
    barley produced in this country and most of it ends up in the feed market.

    In the absence of the single desk, these large Canadian supplies of malt
    barley
    would be available for sale in the North America at any price above feed
    levels.
    The result would be a collapse in the malting barley premium.

    The U.S. and Canadian maltsters have limited capacity and a limited demand
    for
    malt barley. If the supply of Canadian barley to this market is managed
    through
    the single desk, these sales can earn a good premium for producers. In the
    absence of a single desk, these premium prices would not exist.

    So, the high U.S. spot prices are an indication that the single desk is
    working,
    but should not be confused with the prices that would be earned in the
    absence
    of a single desk.

    In a study completed in 2005, it was estimated that for the 1995-2003 crop
    years, farmers would see an average drop of almost $40 per tonne in malt
    barley
    prices if the single desk were removed. The results of this extensive study
    are
    available at www.kis.usask.ca.

    It is shameful that most of the malting barley sales experts in Canada,
    such as
    the CWB sales staff, are prevented by the government from informing
    producers
    during this important plebiscite.

    Without their participation in the dialogue misinformation and
    misconceptions
    can go unchallenged. Surely the best policy to create an informed debate is
    to
    allow all knowledgeable parties to participate in the debate.

    #2
    Dear Richard Gray, U of S, and any other single desk supporters;

    I didn't sell all of my new crop canola (or any for that matter) last spring when prices were significantly lower.

    Why would the CWB in their infinite wisdom sell malt barley right before a huge shortage?

    The problem with the Socialist U of S and Richard Gray is that they talk about farmers as a whole. Yeah Richard we all farm together so if my neighbour Joe Blow wants to sell %20 of his malt for 2.25 per bushel then I have to two or else it might not be fair to him if prices go up, I might get a better price than him.

    Hold on a minute Richard i just realized something.... There is more than one farm in Western Canada. And some of us like making my own decisions. What a fantastic idea, I would be in control of my own destiny. That would make more sense nobody knows my needs better than me.

    I want to sell deliver and get paid for my grain when I need to not when the cwb dictates.

    I want to do the marketing myself and make my own decisions Richard. Is that ok with you and your colleagues at the U of S?

    Comment


      #3
      A note is that current European malt barley prices are substantially higher than even US values. This is not mentioned in the above. That is where additional sales malt product exports are being priced off.

      I also note that the CWB does not have a monopoly on knowledge of the malt barley market. From the aspect of providing information, I can't see an issue with having the CWB clarify issues. If nothing else, there are lots of alternatives to getting information published without having the CWB's name on it starting with putting on this website. Sometimes silence is deafening.

      Finally, I have trouble with the concept farmers would give away 100 % of the malt premium given the effort and risk involved with achieving. Maybe you guys need someone to hold your hand while you selling but my guess is you are business people/have the necessary skills to do on your own.

      Comment


        #4
        Who is this masked man?

        THis is proof the SINGLE DESK WORKS?

        "In Canada, producers will receive a pooled price made up of sales made last
        spring averaged with some sales at the current high prices."

        When did the CWB Directors start contracting new crop Malt Barley even before we seeded it?

        What happened to equal monthly pooling starting about Oct. 1st each year?

        What about risk management if a large position is taken... to offset that position?

        Locking us into low prices is a benefit?

        Talk about shades of GRAY!

        Comment


          #5
          bgmb: So what part of Grays'argument below don't you understand? So if you are wrong about this issue and prices collapse for malt barley what will you say then?

          The evidence shows that most farmers sell well below the peak of any market for a variety of reasons. Some can hit the highs but the majority don't even come close. Hindsight is always 20/20.
          Why do American farmers contract at such a low price in the spring in a rising market?

          Pool returns look good in falling market because pool returns lag cash markets. Conversley pool returns don't look as good in a rising market.

          From Gray:
          "In the absence of the single desk, these large Canadian supplies of malt barley would be available for sale in the North America at any price above feed levels. The result would be a collapse in the malting barley premium.

          The U.S. and Canadian maltsters have limited capacity and a limited demand for malt barley. If the supply of Canadian barley to this market is managed through the single desk, these sales can earn a good premium for producers. In the absence of a single desk, these premium prices would not exist.

          Comment


            #6
            What a load of nonsense, the whole article and argument is based on theory and speculation based on that theory.

            He presents no actual evidence, no real numbers, no real experience, and like Charlie pointed out the whole rest of the world.

            Note to Dr.Gray the malt market is bigger than just Canada and the US and it is supply and demand that sets the price not the mythical board.

            Comment


              #7
              “In the absence of a single desk, these premium prices would not exist.”

              I’ll pull the cup on that one. Malt premiums should exist because it’s harder to achieve malt quality. In an open market, maltsters have to bid up the price, or their supply dwindles.

              Personally, I’m planning on seeding a malt variety again this year on some of my barley ground only because I think there might be a chance of getting a premium for malt this fall. There sure weren’t any premiums last fall with the single desk.

              If I want an average price, I’ll price even amounts throughout the year, thanks.

              Comment


                #8
                On second read, it sounds like someone who is trying to put the toothpaste back in the tube.

                Comment


                  #9
                  From Gray's letter: "In Canada, producers will receive a pooled price made up of sales made last
                  spring averaged with some sales at the current high prices."

                  I'm with you Tom4, How is the cwb able to make sales when the barley hasn't been offered to them? Vader, how much malt barley was offered by propducers, in the spring of '06?

                  Comment


                    #10
                    Lets take a look at [URL="http://bp1.blogger.com/_c28b1zhViU0/Rc0BbO_6vOI/AAAAAAAAACA/QS6AKloawS0/s1600-h/barley-price-comparison - February 02, 2007.jpg"]'those spot prices'.[/URL]

                    When you put them all together in a chart like this you get to see the long term averages. And you have to ask yourself when you're looking at the chart where is this infamous bull market'lag'? Why did the board price follow the trend so nicely from august till december?

                    Comment


                      #11
                      The forward contract prices offered US malt barley producers last spring were substantially higher than the current PRO. The PRO last spring and currently would have included both north American markets and other markets that would have been sold in competition with Europe and Australia. The issue is understanding the PRO/payments and everything that goes into them. Price discrimination does not always work in a farmers favor (actually I would suggest rarely in the case of malt).

                      Comment


                        #12
                        Status quo 29% - What goes on during those BOD meetings, they see results like this (a survey commissioned by the cwb) & still they push on for status quo? Unbelievable, like do they even see these results?

                        Comment


                          #13
                          Charlie,

                          Mr. GRAY must wear a BLACK hat. He is just looking out for the peasant comrades... who obviously don't have a clue.. never have marketed grain in their lives before... and must be stopped or these "designated area" peasants will collapse the world economy!

                          Comment


                            #14
                            From all the posts above I haven't seen a shread of evidence that Gray is wrong. Gray clearly makes the point that malting premiums are a result of managing the supply, something a single desk can do. Individual producers cannot effectively manage supply.

                            Francisco and others: Gray's work is backed up by years of experience and education. In his study he used years of actual contract sales information from the CWB. He modeled the open market to compare prices because there is no open market to directly compare a single desk with.

                            You can get your information from The Western Barley Growers Assoc., The Wheat Growers Assoc. and any number of politically motivated sources or the coffee shop for that matter. But the opinions expressed are not equal to the work and analysis of Richard Gray et al.

                            Alternatively if you prefer the political opinions and freedom arguments fine. But I and many other farmers prefer to make decisons based on credible economic and business analysis.

                            Comment


                              #15
                              I am surprised no one said anything about the 40 dollar per ton premium on the malt if the CWB did not exist. I would like to know where that stat comes from because that would put malt at my location much below feed prices. I don't think there is a location in western Canada where malt has held an average 40 dollar premium over feed prices in the past 5 years.

                              I think he also leaves out the fact that malt companies must contract for the entire years supply. Not just take what is availlable at the time. They want the best , the best demands the premium.
                              I am sure the guy has fairies flying around him and people jumping joyfully.

                              Comment

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