What is CWB Acquisition Price?

[parsley]

Adam Smith says, "But what the Americans don't know and are highly suspect of, is that the CWB will sell to a buyer at a discount in order to make the sale. The CWB can do this because they have no aquisition costs. The CWB also has the ability to sell large volumes into a single market and suppress the price."

Adam Smith, you have to learn to look elsewhere than the CWB propoganda for the facts about the CWB! The CWB takes legal ownership of the grain (but not possession, which is very different). The acquisition price IS the initial price. Any additional payments are a distribution of profits. Since the initial price is so low, they have lots of leeway to undercut markets.

Just so that the Rockpiles of the world don't think the analysis leading to the above is based on anecdotes taken from the local coffeeshop, the following is an exerpt taken from "Canada-US Free Trade Pane l(Dispute Settlement)
[Canada's Compliance with Art.701.3 (durum sales)] :

"Canada relies not only on the "ordinary" meaning of "acquisition price", but also on what it asserts is a qualitative difference between the initial payment, and any interim or final payment. In essence, Canada asserts that the latter two payments are in fact and in law a distribution of profits, as opposed to an amount paid for the acquisition of the grain"


Parsley

[AdamSmith]

Parsley, Yes, your definition of acquisiition price is correct. The point that I was trying to make was the same one that you are making. That the initial price is set arbitrarily so low that it may as well be no aquisition cost. The initial price will sometimes be 50% of world price.

AdamSmith

[TOM4CWB]

Parsley,

This is a very important point you make.

No wonder the Liberal government treats final payments like they came from the government and are their own, and why the media treats them like they are subsidy payments!

No wonder why some US farmers think that wheat board payments are subsidies, they could be interpreted by them as exactly that!

It looks from the outside at first glance that grain producers are the simple people who willingly sell at a low price and just sit here and wait for the government to do our work and give more money to us for our grain!

[AdamSmith]

To Chas,

One must look to the actual legislated mandate of the CWB not their fairy tale version of the CWB mandate. It was either Tom4 or parsley who have written it down in precise terms but in laymans terms "it's to move grain". The notion that they have a mandate to maximize farmers returns exists only in the minds of those who want to believe it to be true.
If you have gotten your copy of the Act you will see it is nowhere to be found. The CWB knows that 98% of all farmers have never read the Act nor ever will, so they can get away with this tall tale.

In the past they've had other more sinister motives like covertly going into border area elevators in the U.S. and gauranteeing to act as a lower price replacement to individual Canadian farmer sales into those elevators. The effect was to overnight dry up demand for farmer held Canadian grain. This occured quite frequently back in the mid 90's, probably not much today though. Today, I suspect they're a little more carefull about their selling practices into the U.S. But even today if they see an opening they just borrow a page from the Wal-Mart handbook and gaurantee that their's will be the lowest price. And in Canada that's the law!

To Ianben,

What will the American reaction to Canadian reforms be. Although I'm not a sage or prophet, I would bet that tensions between Canada and America would disapate rapidly. That is not to say that a few of their farmers will not still complain about Canadian Grain, logic suggests there will be but they will be small in number and they're argument will not gain much traction.

The CWB is a big, easy target with a big red bulls-eye for the Americans and when Canada wises up and removes that bulls-eye the Americans won't have anything to train their guns on, at least north of the border, then without anything to shoot at, they'll put their guns away.

Wishful thinking? or Logic?

AdamSmith

[ianben]

Hi Adam
I am still worried about the effect on the US/world market price.
If they see your reforms as a weakening of farmers marketing position prices will fall.
If you can assure me and them our position will be much stronger I will be all for it.

To acheive this I think we need to have some control over supply otherwise I fail to see how more competition can give this assurance.

I feel Parsley's point about not being compelled to offer your grain to CWB has the best chance for a solution.

If we all agree to substancally reduce supply, prices will rise no matter who markets the grain.
When the markets are sure WE are in control of supply. You can do what you like with the CWB

Regards Ian

[parsley]

I defined acquisition price according to what Canada argued at the Free Trade Panel.

Can someone define acquisition price in the USA?
Parsley

[chas]

AdamSmith: I've been thinking about how the CWB sells into the USA. If the CWB does what you say then the profit is shared into the pool account. If we go to a North American open market than the profits flow into Cargil and ADM and the farmers see none of the individual advantage. Could this be what will happen to the market I wonder. Or will it do as you say raise our price.
A question to everyone on the website and especially any farmers from the USA who maybe reading this. DOES ANY FARMER HAVE TO HOLD GRAIN THAT THERE IS NO MARKET FOR FROM ONE YEAR TO THE NEXT. If we have a carry over where is it being held. It's not in any bins in my neighborhood. If there is a surplus where is it. Farmers are the only ones dumb enought to store it for nothing. Chas

[AdamSmith]

Chas, your falling back into the traditional misguided way of thinking about the relatinship between grain co's and farmers and between the CWB and farmers.

On one hand your saying that the farmers are not making a profit at current prices and in your next breath you state the profit is shared into the pooling account. Which one do you believe? Profit or no profit?

Try looking at it this way. Grain is worth X (you can fill in the blank) at the flour millers mill. There are costs associated with getting grain from your fields Y to their mill X.

The mill is prepared to pay X only if all the specs are met. If it is off spec they will still take it but for a discount. They want it only at a certain time, if it's to early they have to store it and thats a cost to them so theres another discount. If the grain is late they have to idle the mill until the grain arrives another cost. They will have a certain amount of storage in place but only enough to account for a few days interuption in the steady stream that they require. They have commitments with bakeries and processers who in turn have commitments to grocery stores who in a round about way have a commitment to the consumer. You and I as well as the other 97% of the pop. demand that that product be there on the shelf and of good quality. That is what is beyond your farm gate.

Unless grain can reach that final destination it has zero value. What farmers need to concentrate on is what kind of system can take grain from point Y all the way through to point X for the least cost. When Ian makes the point about farmers not being able to pass their cost off like other businesses, he's right, but in Canada with the CWB, the systems costs are all passed on down to to the farmer as well.

So in your mind you mistakenly think that if the CWB sells your grain to a U.S miller they have somehow kept the Grain co.s sticky fingers out of the farmers pocket and your going to make money.

Wrong, what does happen is that the grain has to get from Y to X and the CWB owns no handling facilities they own no transportation. So we in turn pay the grain co.s for their service and we pay the RR's for their service and this is all payed before we as farmers get paid. If things don't go exactly as planned if grain misses spec., the farmer pays, if garin is late the farmer pays, with off shore sales any time a boat has to sit and wait the farmer pays. With the CWB system the farmer retains ownership of this grain until it either ends up at the NA mill or until it's in an ocean vessel.

In an open market system grain will still be going from Y to X but the farmers risks and costs will end at the elevator pit. Ownership transfer will occur and it will now be up to the grain co.s to get it to X and any missed spec. discounts and any late arrivals will be picked up by the Co. themselves. Their ability to pass those cost back to the farmer will be very very limited because if it was company A that screwed up most likely companies B, C, and D didn't. And if B,C,and D didn't incur those costs they can afford to pay a little more to get the farmers grain and company A know if they offer less to cover their costs of their screw up they won't get any grain. Remember why would I sell for $3.90 if $4.00 is being offered?

So I'm not in the least bit concerned about profits flowing into the hands of Cargill and ADM. These companies are so big and well run that the percentage that they need to take to cover their cost is quite small compared to the costs we pay through the pooling system. Competition will insure the margin that the Gr. Co's take will remain acceptable and I am certainly prepared to have others make a profit in the process of getting grain from Y to X. Because without them there that grain I grew is worthless.

I haven't made any assumptions on price here because I was trying to address the issue of costs.

One other noteable point. When the CWB talks about the price it recieves for purposes of comparitive studies, it always uses port or end use prices never farmgate. Why do you supposes that is? Could it have to do with the high cost to farmers for the pooling system?

AdamSmith

[ianben]

Hi Adam
That grass is still looking greener to you.
Over here with the free market spec. is still the responsibility of the farmer.
Penaltys for not coming up to spec are severe and bare no relation to the price.
Deductions are the same whether prices are high or low, Most times grain will still be accepted at a discount with farmers having to prove the spec was right when it left the farm.
How do you proove the bushel or moisture was correct if they reject say 1load in 4??
We know if we have to load for a certain mill on a Friday it will likly be rejected because they always over order just in case. By Thursday their bins will be getting full. Their reasons for rejecting are imageative to say the least but the farmer foots the bill for the transport when a load is redirected at a discount.
Sometimes we may get a small bonus if a boat needs loading and they are short but again they decide if it meets their spec. and it is not uncommon for 1or2 loads to fail for no apparent reason They say, low bushel or high moisture, only 0.5% we loose £2/3/tonne and it still goes on the boat.
I am not blaming anyone in particular for this. The grain co. try to be on our side sometimes but there is always soneone else to blame.
Again as individuals we leave ourselves vulnerable to such practices. It is not just grain but all comodities as individuals we are a target for sharp practice.
Why do some farmers see other farmers as their competitors when co-operation could acheive so much??

Regards Ian

[AdamSmith]

Hi Ian, I guess when your staring at alot of dead brown patches the slightest bit of green looks appealing!

I hear what your saying, the malt barley market in this country works about the same as you describe. We know of rejected malt cars being unloaded into the malsters bins and creative reasons for rejection about sums it up well.
I've given up on malting barley for that reason. 85% of the barley grown in W Canada is malting varieties and only about 20% is accepted. You don't have to be a rocket suregen to figure out what the most likely result will be.

Canola and Peas are pretty nice crops to market. Green seed count in canola is the most common downgrading factor but good variety selection and good harvest management can usually eliminate that concern. 95% of all the canola I have ever grown has graded #1.
Dockage can varey but usually the companies are pretty square about it, especially if your breathing down their neck as they're doing the dockage test.

Because the CWB scared most of the flour mills out of western Canada 40 and 50 years ago, western Canadian farmers do not get much opportunity to deliver directly to mills so pretty much all wheat goes into a grain companies elevator. The Canadian Grain Commission oversees the grading and weighing of grain and acts as an arbitrator in the event of a dispute.

By and large most farmers do not have many beefs with the CGC but there are some aspects of our grading system that most farmers would like to see changed a bit. I don't know of one farmer that thinks color should be a grading factor yet it is color that determins wheat grades. Kernal Visual Distinguisability or KVD is what determines a class of wheat and whether a variety gets registered. Too many times a good variety has been rejected for registration because it didn't look like other varieties of that class of wheat. Just within the last couple of days a promising new wheat variety with good fusarium resistance was rejected because it didn't look quite right. The disease fusarium is costing farmers in Manitoba and SE Sask. million in losses each year and the first variety with some resistance to come along is turned down for that reason. It really makes one question the value of such a grading and varietal standard.

Ian do you have an equivalent to our CGC in England?

Also, is there much competition in your immediate area for your grain?

We have shrinkage in this country do you have that as well? Some people call it tookage!

AdamSmith

[chas]

Adamsmith; Listen to what Ianben says about your theory of marketing and listen to any American Farmer about the freemarket lot the Cargil's and the ADM's have for them. You trust that, I would like to trust a farmer elected board of directors of a marketing agency
that would market and price my grain and oilseeds. Lets market it in the best interest of our industry. If that takes an open domestic market or export licenses so be it. But lets not kill the goose who can lay the golden egg without attempting to clean the nest.
When I first wrote on this site I was not concerned about anyone part of our marketing system the whole dam system stinks world wide. All the freedom fighters here can do is pick away at and blame the wheat board. Farmers problems are world wide, what works here will not work in Europe and so the problem continues. As Ianben says cooperation is the key to a healther industry that our children might want to inherit.
We can look at the cost to doing everything for ever but if we done create margin between input and profit you can stick a fork in it. The only way to sustainablity now days is to get bigger and bigger or get yourself an off farm job.
I don't have the answer and neither do you but we won't find it either unless we go through this painful diccussion that is never ending. Chas
PS I hope I feel better tomorrow.

[TOM4CWB]

Chas,

On the US market and CWB effect,

I think the non-board barley market is another really good example of CWB price depreciation, and why we must have competition.

In fact the elevator co's have been bugging the CWB for years to allow a competitive export feed barley market.

The grain co's cannot get a major benefit from reducing elevation if export prices will not be allowed to be competitive with the domestic non-board market.

It appears that the CWB does not want to fix the export feed wheat and barley marketing problems.

CWB Advisory Members Lee Erickson and Larry McGuire can both testify about the CWB “fiduciary responsibility” to never short the Canadian feed wheat and barley market. The CWB will deny that this “fiduciary responsibility” even exists.

However the Senate hearings in 1998 clearly identified the issue and Mr. John Prentice emphasised this CWB obligation in no uncertain terms.

In the US Pacific North West(PNW), the US livestock producers have some of the highest feed costs on the planet.

Why?

The US system encourages an open free flow of all grains at premium prices, and encourages these grains to be exported out of PNW US.

However, not far across the border in Canada, we have some of the lowest prices on the planet.

Ah but you say the CWB emphatically ensures you that I am wrong.

The CWB points to US exports that come into Canada. Then the CWB says see, the price must be and has to be higher than in the USA. In a very few export sales that were subsidized, this was true, but this was the exception and not the rule.

My simple answer is the same as in 1996 when the CWB said these same things.

Issue me a no-cost export license, because if we do have the highest prices on the planet obviously I will not need to export my grain to get top value! By the way this is the same CWB export license that already is issued to the feed mills.

If the CWB were to facilitate an open free flow of feed barley and wheat into the export market, it is generally accepted that this would leave the domestic feed market at an unfair disadvantage.

It is then stated that Feed users would then have to compete against a government-backed monopoly. Can there be any clearer evidence that the CWB is not here to maximize wheat and barley farmer’s returns?

The objective of the Canadian government is “value adding.” What better way to promote supply managed, and red meat, livestock products than by locking in some of the lowest cost most available feed grain stocks on the face of this planet, by preventing arbitrage with international markets!

Why?

The CWB is afraid of allowing arbitrage because many of the “premium value” grains we produce would lose their production incentive if our lower quality products were more valuable.

Issue us the no cost export licenses, and we will find out who is shooting straight!

Will this cause US prices to drop?

Probably a little down in the US and a little up in Canada.

But then if we could get the railways to compete more, I think US growers would win more than they would lose!

This is very complex I know, but so is farming today isn't it?

[AdamSmith]

Hi Chas, It's good to be passionate about what you believe as long as, as many facts are incorperated into the equation as possible.

The only thing I trust about grain companies is that they're going to act in the best interests of grain companies. With that said I would hope they wouldn't operate any other way. Because if they put other interest ahead of there own they'll be out of business and of no value to anyone. As long as I understand that I can deal with them.

Would I close my eyes and let Cargill drive into my yard with semi trucks and drive away with my grain? Of course not but I don't see them as my enemy either. Yet to many farmers close their eyes and let the CWB do exactly that based on what I see as blind faith and unearned trust.

Correct me if I'm wrong but it sounds to me as if you think Cargill and ADM are the enemy. And that your more interested in seeing those companies eliminated from the scene than anything else?

You say you would like to trust a farmer elected CWB board of directors?
Does that mean because Canadians have elected Jean Chretien and Ralph Goodale. You trust them? Ralph Klein just won another sweeping mandate in Alberta, does he automaticlly recieve your trust?

Putting all your trust in people who have unlimited power to use and abuse your money and your property in my book is the most frightening thing of all.

You say we need to co-operate I have no problems with co-operation. Voluntary co-operation! But if I choose to go it alone that should be know ones business but mine.

You can say what you like about Cargill but the last time I looked no one was ever thrown in jail for not dealing with them.

I love farming, I love the independence that comes with farming. You take my independence away , I'm out of here and my children will never know the love of farming.

AdamSmith

[ianben]

Hi All
I must admit to seeing those green patches over in your country too.
I thought the CWB was a real asset to your marketing now I am not so sure.
I do envy your elevator system and CGC we do not have the equivalent of either in UK.

We have plenty of customers for our grain especially in the west where I live, more livestock here.

There are plenty of grain traders too.
Not much competition on price though. They are 21st century companies, they only compete on service and terms.

Most grain canola and peas too is bought ex farm we just load independant hauliers so we have no control over our grain after it leaves the yard.

Cargils have a canola crushing plant 10 mls from our yard, but we are not encouraged to deliver canola ourselves.
In fact we can often get £1/50p more from a different trader for delivery into Cargils but I think this has more to do with transport costs than anything else.

Canola is definatly the fairest comodity we market too.
We get bonuses for moisture and cleanliness if over spec. It is time the grain trade took this on board then the deductions the other way may not seem so unfair.

I agree with your last paragraph about independance too, but can we not co-operate and be independant.

If this web-site, or one like it where ever we live, gave us precise imformation on how much and for what price we should market our grain.
Why would we not take notice?
It would be totally voluntary and yes if your circumstances demanded could be completly ignored.
However if common-sence could show the logic in the advice.
How many of us would ignore it.

As I have said before we all take advice on fert. and chem.
How often do you ignore them?

I even think it would lead to more freedom. If we are trying to replace the 1000 tonnes of wheat we just sold just think of the different ways this could be done.
Maximum production of fewer acres
Same acres with LOWER imputs
Or any other combination you can imagine.
This really could be freedom to farm knowing the 1000tonne would leave a profit.
That should cheer you up Chas!!

Regards Ian

[chas]

Adamsmith, Tom4cwb,Ianben and anyone watching; Most farmers and politicans don't listen to complex issues very long and would soon not concern themselves with it. Lets put together a Marketing Solution for Canadian Agricultural Industry that would be better than what we have now and if the CWB fits into to this system somewhere.
Try to keep it simple and give the benifit it would create.

Most farmers in my area don't know the extent of the problem that is being created by the CWB or the dual marketers. Jim Chatenay at the meeting in Red Deer did not explain the benifits of dual marketing other than it was a freedom that we all should enjoy. You must remember that my neighborhood is 350 miles from the US border and we don't see every day how it might move our market. Freight is freight from here. We thought we had a marketing agency in the CWB but now all the farmers in the southern part of the prairies are saying their just a bunch of crooks. And Jim Chatenay doesn't help his cause by not having meeting in the rest of his area to explain the merits of the dual marketing idea. I have learn alot from this diccussion but lets try to unscamble it now into a clear benifitical solution. Chas