Letter From Richard Gray on Malt Barley

[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.

[Burbert]

Chuckchuck, Boy the free marketers sure squeal loudly when confronted with some common sense and logic. I agree it would be terrible to discard an entire structure, system, just to see what is going to happen. My bet is that the new way of doing things will be as unhelpful as, killing the CROW was!!!

PS I grow malt, each and every year, hence am very concerned about the distorted information that is being given out by the self appointed, know it alls studying charts and in hind sight making brilliant marketing decisions.

[chuckChuck]

bgmp. It is just not about whether you like pooling or not. Moving to an open market for barley will according to Gray lower the malt barley price.

Don't you think it would be wise to consider the overall price consequences of an open market? Individual freedoms are important but responsibilty to the rest of producers is also very important.

Pooling is simply price risk management. Most farmers are not good at price risk management in open markets. According to Gray if you used a simple average in any open ag. market the majority of farmers sell just slightly below the average price.

With wheat you also have the choice of using the DPC, Basis and FPC at the Board which effectively let you price outside of the pool at US elevator prices.

You also have a huge array of open market crops to play with.

What more do you want?

[chaffmeister]

When one door closes, another opens. But we often look so regretfully upon the closed door that we don’t see the one which has opened for us.’

— Alexander Graham Bell

[charliep]

I will note that farmers are not big users of the fixed price contract (1206 tonnes of malt barley in 2005/06 and 343 tonnes of feed barley). EPO use was higher (annual report). I assume that the reason the FPC programs are not used is because they do not show value/meet a farmers business needs.

With regards to farmers selling at the market low, participation in the A and B feed barley pools would verify this. Farmers delivered the most feed barley at the market (market of last resort when bins are full).

Daily price contract for feed and malt barley. Doesn't exist today. The CWB has an opportunity to quit talking and bring it on. Why wasn't this program introduced at the same time wheat was?

[wedino]

chuckvader, Show me Gray's letter on how the cwb can do better on marketing of oats or canola.

[bgmb]

Chucky

What more do I want?

POOLING DOES NOT MAKE SENSE ON MY FARM!!!!!

Can i be any more clear.

What I want:

I want an open market for wheat and barley.
I wanted to sell my wheat off the combine this fall to free up storage for a record crop and create cash flow after all wheat prices a couple of hours away in the united states were very attractive.

Instead since i couldn't deliver my wheat I had to sell canola even though i thought the market would go up.

But gray would never consider a scenario like that in his study. he would just assume most farmers are too simple to figure that one out.

It comes down to the fact that I think i can do better than the CWB on my own.

Why not give me the opportunity to try?