CWB costs

[ceresent]

Survival for farmers and grain companies in today's world demands that we reduce our costs per unit of production or throughput. Since farmers have no one to pass additional costs on to, and the Feds appear more interested in saving Bombardier and the fishermen in Atlantic Canada, we simply have no choice but to be as innovative as possible in driving down our costs per tonne.

If grain companies operating margins are too high, their bottom line will suffer in relation to their competition, and their long term survival becomes questionable as their share prices fall.

This is what occurs in the real world of competition.

Now lets look at what goes on in the monopoly world of the CWB.

Using information from the last 5 annual reports of the CWB, we see their administrative and operating costs dramatically escalating.

From 1996 to 2000, their admin costs have gone up from $41.4 mln to $63.8 mln, and increase of 54%. Total operating costs in the same period have gone up from $149.2 mln to $181.2 mln., an increase of 21%.

If we wish to look at this on a per tonne basis, admin costs have gone up 44% per tonne over the past 5 years, while operating costs have gone up 14% per tonne.

Wouldn't it be nice to farm in this type of world where you simply pass on all your costs, no matter how fast they are increasing?

[parsley]

ceresent, you say,
"From 1996 to 2000, their admin costs have gone up from $41.4 mln to $63.8 mln,and increase of 54%. "

Would you happen to know what potion of the admin costs is export and interprovincial license issuing?

I want to eventually find out what are the costs of DA farmers/ non-DA farmers concerning export license admin costs. The CWB dumps the bill on DA farmers, even though the Act says the government must pay regulatory costs.
Glad you've waded in, looks like you have lots to teach us.
Parsley

[ceresent]

Sorry Parsley, I don't have that info as it is not broken out in the data I looked at.

Good luck in finding it.

[ianben]

Hi Ceresent.
Nice to talk with you.
I agree as individuals we must try to produce more for less to survive but we have been doing it for so long it is now nearly impossible.
Look at what 1tonne of wheat now buys out there in the real world.
A good pair of jeans or trainers.
Half a filling at the dentists
Lots of guys earn more than 1tonne/hr.accountants doctors lawyers.
How many tonnes for a new combine??2000???
The price of wheat is just TOO LOW.
We must learn to pass on OUR costs like every one else and get off this treadmill of production and price competition
No farmers anywhere in the world can survive long term at these prices

Regards Ian

[Vader]

Considering the fatalistic reality of declining numbers of producers along with the governments steadfast refusal to provide meaningful relief I purpose the following:

Farmers are a threat to the long term stability of the food supply.

The major grain companies have indicated their desire to "feed the world"

Governmnents say they cannot afford to subsidize the farmers.

The major grain companies can artificially drive down commodity prices and move their profit centers at will to their mills and other value added facilities.

Grain companies can drive farmers out of business and then hire them to produce under contracts where the grain companies have title to the grain. (Emphasize "title")

Government would benefit from a vastly increased employee base in the agriculture sector where employees have income tax deducted at source and remitted to Ottawa.

Government probably thinks that the long term security of the food production is better in the hands of grain companies than in the hands of farmers. (Whether this is true or not is irrelevant as long as this is what the government believes)

Summary:

Low grain prices are being set artificially by the grain companies to drive farmers out of business. The government supports this agenda.

Solution:

Producers in the large part still have title to their crops. Quit selling these crops below your cost of production. Don't use any excuse such as cash flow requirements or indebtedness to turn away from this reality. If we keep selling below our cost of production we are all finished.
PERIOD.

[TOM4CWB]

Very interesting!

I guess if I can sell above my cost of production using the CWB fixed price contract, then I am fulfilling this obligation!

If I sell to the pooling account, as it says in the cost of acquisition topic, I for sure am selling below cost of production!

This makes good sense, and is exactly why I extensively used the fixed price contract, and got a profit from my wheat production this year through it!

[ceresent]

Thanks for your comments Vader;

I'm not sure I buy into the "grain company conspiracy thing" to drive down grain prices. Its not really in the best interests of any component of an industry to attempt to bankrupt their supplier of raw material.

In fact, if you look at the Canadian grain regulatory model right now, both farmers and grain companies are doing quite poorly financially. Only the railroads and the CWB seem to have the ability to pass all their costs on.

As for the government saying they can't afford to support agriculture -- that is what we are hearing only from Ottawa, as the the EU and the U.S. certainly have rich support programs.

Farmers have to depart from the old "we versus them" concepts that exert divisions in a supply chain. This was the marketing board model that has proven not to work in the hog industry.
It would be much easier for grain processors to work with farmers on their supply needs if you did not have artificial barriers such as the CWB in the middle. Look at the current problem processors are having getting supplies of soft wheat in Alberta because the CWB has the arbitrary ability to set price spreads which may not necessarily reflect the real prices received.

In terms of what the big grain processors are thinking, please refer to the Nov 28/00 issue of Milling and Baking News and an interview with A.Andreas, Chairman of ADM.

Quote "A system that doesn't create a return on invested capital for the farmer is a disaster in the long term for the agricultural environment.

When the global marketplace enjoys surpluses that cause prices to go below the cost of production, the imperative for our government is to step up and be counted in the world marketplace to preserve the integrity of our farming system and the ability of our small farms to survive. We favour changes that will still preserve the farmer's decision as to what he plants."

[parsley]

Vader, you say,
"Low grain prices are being set artificially by the grain companies to drive farmers out of business"

Again, Why would grain companies want to run their raw supplier out of business?

ceresent, you quote A.Andreas, Chairman of ADM:

" We favour changes that will still preserve the farmer's
decision as to what he plants."

Now, if Andreas had gone one step further and said "what he plants and what he markets", I'd know ADM is on side. But he didn't. ADM wants a guarantee of supply. A t present, They don't need to pay someone to source grain, to store it, etc.with the CWB regulations in effect. Those costs are compliments of the farmer through the CWB. And ADM would hate to see that change.

1. ADM needs the farmer to survive. It needs grain.

2. ADM needs CWB regulations to get a guaranteed flow of grain, (as long as they suck up a bit.) Same for all companies.

Remember, all grain storage buildings, and elevators have been declared "works for the general advantage of Canada", so the grain companies are very vulnerable to having to hustle to make a living without the CWBregulation-pipeline.

So Vader and ceresent, maybe in the long run, you're not wrong or right, but I enjoyed reading your comments
Parsley

[Vader]

ceresent,

you said that when the world price falls below the cost of production it is incumbent on the government to step up to the plate and help out the producer.

Why does the government not see it this way?

As far as the railways being the only ones who can pass on their cost of production. Hold on there.

I say a box of wheaties with Tiger Woods picture on it. I was told that for that Tiger Woods received 7 cents per box, which was more than the producer received for his grain. Do you think that the breakfast cereal manufacturer absorbed that cost? No way! That was passed on.

Here is the real gold mine. Breakfast cereals, croissants, pancake mixes, chocolate chip cookies, and the list goes on. I know that ADM, ConAgra and Cargill have HUGE profit centers in all of these areas. Don't tell me that these guys need to show a profit in their Canadian Elevators. They need a consistent source of supply to continue to turn billions of dollars in profits in their value added sectors. The profit in the elevator is simply not the issue.

The elevator is the link to the supply which MUST be stabilized. Do you think these guys are going to depend long term in the Canadian producer or the CWB to guarantee this long term stability. This is why I emphasized TITLE to the grain. These guys have always proven that their intent is to vertically integrate their business.

Once they have title to the grain and have transferred their profit centers to their US Mills would it be in their best interest to allow commodity prices to rebound? Absolutely not!

Once the farmer becomes an employee to the grain company on his own farm then by keeping the commodity priced below the cost of production it is guaranteed that there will never again be an incentive for anyone to try their hand at primary grain production. To compete against a vertically integrated corporate giant you must be another vertically integrated entity. As a farmer you would have to grow the grain, mill it, bake it and market to the consumer. Will you take a significant market share away from the likes of Cargil in this scenario? Not likely.

[ianben]

Hi All
One reason writing I am writing here is I hope to make you see this is a world-wide problem not just Canadian.

The CWB may be unique but the way it affects prices hurts me also and I am sure farmers in the US too.
I wish some US farmers could give their point of veiw. Can anyone suggest a US farmer who might help?

I still worry the US markets would see your reforms as weakening the farmers marketing position further, leading to lower prices.

Vader I dont go with your conspiracy theory either. I just think they do just like us. Try to buy at least cost and sell high. If I could find some fert at $50/tonne I would buy it.
I would still try to get the best price for my grain.
We can't blame the Cargils etc.because we refuse to co-operate and demand a sensible price for our grain.

Tom This profit you made are you willing to discuss it?
Was it a profit over imputs?
I can still make them just.
Was it a profit which allowed you to replace your machinery one day?
I need to be very optamistic to acheive this.
Was it a real profit which gave the above plus a return on capital invested?
I have difficulty acheiveing this even in GOOD years.
This is what we should aim for if we are to have a long term future.
If we don't find a way to substancaly raise prices the only league table of interest in 2008 will be where the family farm still exists. I fear the UK will be top totally extinct. This f&m will be the end for many They will not have the heart to start again with such an uncertain future.

Regards Ian

[ianben]

Hi Tom
No comment on that profit last year?

[TOM4CWB]

On Profit,

I guess a realistic marketing plan that works on the basis of average yeilds for a farm, the input costs must then be subtracted that went into creating this grain product, then creating a margin above these costs.

I would call this profit.

Now comes the CWB and the fixed price contract which my farm used.

In 2000 We priced in the top 10% of the Minneapolis futures price range for this crop year, and yet the CWB Pool Return Outlook indicates an average price 25% higher than this yet again.

I really cannot see how the CWB is not making really big profits off the really good pricing decisions I made.

This is of course all in the basis.

The CWB has no basis competition and I will be interested to see how much they are going to extract out of my families bank account when this is all said and done!

We had enough "profit" left over after the monopoly extracted its pound of flesh to make a living, invest some into our community, and keep our equipment current.

I know talking numbers will only add major confusion, because everyones numbers are different(and rather private), just like a profit for each farm will be at a different sales price.

This is why we must be able to decide when to price our grain, otherwise we are complete slaves.

Profit is probably the hardest thing to talk about, wouldn't you agree?

[ianben]

Thanks Tom
That was the type of reply I was looking for.
I do not think specific prices would help either as money also has a different value depending on where you live.
That has been apparent to me on my trips to your beautiful country.
Sask. and Man. seemed to have a lower cost of living than Alberta??
It is the same here different places have different costs.
That does not stop 21century companies fixing different prices in different parts of the world. Roundup for example, someone quoted the price in Argentina, perhaps costs in Argentina allow this lower price and Monsanto's profit is the same on both deals??

Why can't farmers learn to do this???

Your profit looks very similar to mine.
Not a 21st century profit though perhaps we would get a better return in a deposit account??

Until we get a return on invested capital we will not encourage young people to farm and we do them a disservice.

Regards Ian

[TOM4CWB]

Ian,

I think you are right on all counts!

Farmers farm because they love growing food, not because they get the best returns!

And I guess this is why we have lots of good food in this world today, and that is a good thing!

As for my next generation on the farm, well, I guess they will have to fall in love with farming for that to happen!