Letter From Richard Gray on Malt Barley

[chuckChuck]

CP. What were the contract prices in the US because if Francisco's charts are correct US malt was around $130 CAD in May while our current PROS are around $150 CAD.

[charliep]

chuckChuck

We're not to convince each other in the barley plebescite. So the Schmitz, Schmitz and Gray study is the only piece of evidence the single desk supporters has to put before undecided voters in the plebiscite? Everyone can read and judge for themselves.

[charliep]

Graphs are a spot price - not a forward price. Have scene a delivered Coors contract for US $7/CWT or about Cdn $177/tonne to Calgary (US product brought north on a toll malt basis. You indicated you have access to last summers US new crop malt barley bids - I encourage you to share.

As others have indicated, the issue is not as much fact the CWB forward as they did without having the farmer pricing/delivery side locked. In the US, farmer would have filled their lower prices and would not be selling additional supplies at current higher prices. In Canada, the issue is to get enough barley to fill the exisiting CWB contracts from this summer and from there participate/sell into the current higher valued market.

[charliep]

Must be to shut off the computer/watch curling. Should have said.

As others have indicated, the issue is not as much fact the CWB forward PRICED as they did SO without having the farmer pricing/delivery side locked IN. In the US, farmer would have filled their lower prices CONTRACTSW and would NOW be selling additional supplies at current higher prices. In Canada, the issue is to get enough MALT barley to fill the exisiting CWB contracts from this LAST summer and from there participate/sell into the current higher valued market.

Sorry for the mistakes.

[BennyHin]

Fransico: is there a greater economic benefit to lower barley prices in Western Canada because it will re-stimulate the pig industry that is currently under pressure from higher feeding costs? Not to mention that it will no longer be free for you to continue to pollute the environment?

What is your position on this side of the arguement? I remember an editorial in the Country Guide about a year ago written by your hero Jay Whetter claiming that higher feed prices were the worse thing for the agriculture industry, as the true value was in hogs, chickens, cattle, and milk?

[Fransisco]

When and where exactly did I say Jay Wetter was my hero?

[Fransisco]

Chuckchuck, the charts are not opinions, they are not hypothetical mathematical models and they are not political constructs. They are the actual real world prices.

And the boards own numbers show that they have 8% of the worlds marketshare of barley. Do you honestly believe you can control the world price with an 8% share?

Heck, they can't even do it in Durum where they got pretty much a 50% share.

Yes Gray used actual contract sales information from the CWB. So what? He plunked them into a hypothetical model which spit out a hypothetical conclusion.

And guess what? If you took the actual sales data from any other crop and put it into that model you'd get the same results. Which means the model proved nothing, it was a useless exercise.

And how is it Chuck that someone who seems to be so concerned about everyone else's motives finds an ivory tower prof who has been on the CWB payroll for close to forever credible?

Can't you even make judgements by your own standards?

[Fransisco]

Benny, if the price is so low that no one will grow it then what's the point?

Everyone in the equation has to make money. From the plant breeder to the seed supplier, the grower, the various processors all the way up the chain until some person puts it in their mouth.

Personally, all other things being equal, I would rather feed my animals Canadian barley than American corn.

It's not all about price, at the end of the day its about margins. And there are a lot of costs in the current status quo system with regards to board grains that don't have to be there. Check the federal grains monitor and you'll find $17-30/tonne of them when compared to canola.

Remember competition will lower costs but it is supply and demand that ultimately determines price.

[Fransisco]

If margins are better, more barley gets grown, and there is more feed available for livestock as well as malting and anything else people care to do with barley.

It's called a win win scenario. I'm sure you've never heard of it.

[chaffmeister]

I can understand Richard Gray defending his study – after all, he got paid for it.
But I have a real tough time making any kind of sense out of the undying devotion paid to him by chuckChuck.

You say opinions expressed by the Barley Growers or the Wheat Growers “are not equal to the work and analysis of Richard Gray et al. Let me share a little secret – Gray and his U of S associates don’t have the reputation in the academic community you apparently think they do. Let me be blunt and put a sharper point on it – you defend them more than their peers do.

If you weren’t so blinded by their mediocrity, you’d be able to see that in study after study they say the same thing – and its all misinformed. You probably wouldn’t notice that they are substantially alone in ag academia in their analytical approach and conclusions concerning the single desk. But I'm going to guess that even if you were aware of the other many studies refuting the benefits of the single desk, you'd dismiss them anyway (what reason you'd give, I do not know).

chuckChuck – you say you “prefer to make decisons based on credible economic and business analysis”. How can you say that when you are so close-minded and the first rule of credible business analysis is to have an open mind? (Rule #2 is “Never make business decisions on the basis of emotion.”)

“Minds are like parachutes — they only function when open.”
— Thomas Dewar

[chuckChuck]

So Chaff? Where are the most current studies that disagree with Gray and Schmitz? They have not appeared in the popular press. Why should anyone believe your thoughts about the credibilty of Gray? If you haven't read it, Gray and Schmitz addressed the problems in other studies. Since you won't agree with the conclusion don't bother reading the Gray study.

[charliep]

Every academic study/model has to be compared to reality.

I note this year under the CWB system, the price of domestic feed barley and malt are the same. Do you really believe that the price of malt and feed would be the same in an open market? That is the case the Schmitz, Schmitz and Gray study is making. As others have said, the $40/tonne loss of premium would put malt barley well under domestic feed - particularly for 6 row.

If you are a single desk supporter, I encourage you to share you vision of barley marketing in the future. Does status mean everything stays the same as today? Does today CWB marketing system meet our customers needs (maltsters and exporters)?

[bgmb]

CHUCKCHUCK

I understand exactly what gray is saying. I just don't agree with it.

yes you're right sometimes the pool is better than the cash price and sometimes not. But I still don't like the pool!
The pool is about as outdated as combines with no cabs!

I didn't say gray was wrong about how the cwb operates or what it did this year with malt. What I did say in short was that I don't like the CWBs pooling system and since they can't come up with a pricing instrument that reflects cash markets and meets my delivery and cash flow needs I want a dual market. Simple as that!

What pi%%es me off is that gray and other single desk supporters have the nerve to suggest all farmers should be forced into a system that doesn't make sense for many of them. Many times their justification is that farmers are better off as a whole under the cwb system. The fact of the matter is nobody knows that. We live in a capitalist society and as a business owner you better have the ability to market the product you produce on your own not rely on the CWB to do a mediocre job for you.

[cropduster]

Easy now Charlie...not too heavy on the logic there!The social gospellers only understand what they`ve been told(by the wise guys) not what they understand or`question` for themselves.

[chaffmeister]

chuckChuck –

Schmitz, Schmitz and Gray’s study was completed in Feb 2005. If you believe this is “current”, then so is the Sparks study that was released in April 2004.

My thoughts or opinions about Dr. Gray’s work are as valid as anyone else’s. Mine are based on a detailed analysis of two pieces of work he has done:

1….The Benchmarking Methodology he did for the CWB. Absolutely flawed in numerous ways – and all the mistakes were in the CWB’s favour. For example, when calculating the cost of the CWB, Gray didn’t include storage that the CWB pays to the grain companies, apparently because he couldn’t find a similar charge in the US. (He didn’t seem to realize that “storage” is found in the basis.) This is just one example of his weak assessment – you really don’t want me to list them all here – trust me on this.

It’s interesting to note that the CWB does not publish any benchmarking results using Gray’s “methodology”, even though that was the reason for developing it in the first place.

2….The “current” study out of the U of S – the one you suggest is definitive. Not only have I read it, I have studied it.

Two basic premises they use are flawed. (1) The idea that Japan pays more than other markets is an indication of “price discrimination” by the CWB is just laughable (others have shown that the same would occur if you looked at US barley exports in the same fashion, or even canola – both are multiple-seller markets). And (2) the use of the Law of One Price to suggest that multiple sellers would force the Japanese price lower, is equally laughable. These guys don’t have a hot clue about how grain is traded. (Who do you think has more credibility – someone who’s studied farming or someone who actually does it?)

Take a close look and you too would see that much of the “weight” of the study is a regurgitation of previous work that Schmitz had done in 1997. Basically a case of SSDD (Same S**t, Different Day). (Much of the write-up refers to the impact of EEP on barley prices, for goodness sake!) Also, I encourage you to take a look at Section II, the overview of the global barley market. Then take a close look at Section I of the Sparks Study of 2004. You will see that Gray and his associates basically copied the Sparks study. (They didn’t even bother to update the tables and charts!) So, to say that Gray is “credible” then you really are saying that the Sparks study is also credible. (Got a problem with that?)

In Section VII, Gray and his associates recount the chronology of events surrounding the importation of malt barley from Denmark. Their facts are wrong, including the actual dates of the purchases and the reasons for them. Gray’s comments directly contradict what the importing companies would tell you – it makes you wonder where they researched it, if they did at all. (All they had to do was talk to the maltsters. But I guess talking to the CWB was good enough for them…)

So, if that’s your idea of credibility, so be it. But others certainly have higher standards.