A view of open market Malt Barley

[silverback]

Interesting logic burb, the grain companies are cheating us farmers so we need the cwb to protect us from them, ... but the cwb hasn't been protecting us for 60 years as the grain companies are robbing us, sooo... we just need to give more control to the board?

Maybe the only thing that would make a socialist/communist happy is complete government ownership of the grain industry from farmland to shipping?

Is there anything good about grain companies to these people? It never seems to be good enough in any industry.

[AdamSmith]

silverback, your way too generous to BOOBert. There was nothing logical nor interesting about his blog-rage.

[wd9]

The same should have happen to human peas and feed peas, but hasn't. I would venture to guess the CWB has prevented a premium as opposed to providing one.

[chaffmeister]

Burbert:
<i>Talk to anyone who worked for these companies...</i>

Like me, Burbert?

I won't bother to repeat what I've posted here over and over. But I will summarize:

The only good margins in grain handling nowadays is for CWB grain. (So how is it that the CWB has been protecting you? And you think the grain companies are happy about losing their cash cow?)

Go ahead. Ask me another.

[just_wondering]

I was talking to a pro-monopoly supporter about marketing his malt his comments were along the lines of using gasoline and big oil as an analogy. How any premiums would be absorbed and prices would still not be seen at the farm gate. Much as if the GST on fuel was removed big oil would only take it I have beat this fellows retoric all over the map many times, but this one had me stumped all, I could say was
"If we were going to have a monopoly don't leave it in the hands of socialists".
sometimes I have to resort to retoric as well.
What should I have said?

[just_wondering]

BennyHin -- above you say "It should be noted, that even Blair Rutter, Policy Manager with the WCWGA agreed in this edition of the Manitoba Co-operator that the price premium for malting barley over feed will erode in the open market environment."

I'm afraid you've taken my comments out of context. The clip from the Co-operator reads as follows: "Rutter expects the premium for malting barley will narrow relative to feed, but more barley will be sold for malting than now. Therefore farmers will be better off.

I stand by my comment, although I should have said that I expect the "price spread" on barley sold through the CWB to narrow. In the past 10 years, the CWB's final price for 2 row Special Select barley has averaged 198.68 per tonne, basis Vcr. The CWB's final price for feed barley has averaged $147.54, giving rise to a (simple) average malt premium of $51.14 per tonne, basis Vcr. However, this overstates the true "malt premium" because CWB feed barley returns are generally well below returns earned for feed barley in the off-Board market. As you know, in this crop year, off-board feed barley returns in many places throughout the prairies have often been higher than expected malt barley returns under the CWB.

Under a marketing choice enviroment I expect the CWB's so-called "malt premium" to decline -- that is, the spread of malt over feed will more closely track the spread you see in U.S. markets. For the past 15 months, the malt premium in Montana has ranged from Cdn $60 per tonne in January, 2006 to about Cdn $20 per tonne over the past six months. (For the Montana barley price chart, go to: http://www.choicematters.gov.ab.ca )

In any event, I do believe that prairie farmers will be much better off in a market choice environment for several reasons, including:

1) I expect more barley will be selected for malt. This will be especially true in years of rising world prices (such as the 2006/07 crop year) where the CWB has a difficult time attracting malt barley supplies to meet good sales opportunities in world markets.

2) If more barley goes into malt markets, that means there will be less available for feed markets -- this in turn will strengthen feedgrain prices.

3) Farmers will have greater flexibility to deliver and price their barley when it best suits them. There's also less risk of downgrading losses. Moreover, the greater flexibility means farmers may be able to sell more malt barley off the combine, and will not be as pressured to sell their non-Board crops in fall when they are expecting a price rally.

I could go on, but suffice to say that I believe barley will now become a good "cash crop" and that we will see barley acreage increase over time, just as we've seen with oats after it was removed from the CWB. (Mind you, once we get marketing choice in wheat, I wouldn't be surprised to see a shift back into wheat, as it too will become more profitable to grow.) In my view, acreage shifts (positive or negative) are the best barometer of the impact of any policy change.

[wd9]

BlairRutter, you paint a very disappointing and lack of a value added future for malt barley.

The problem is 80% of the potential malt barley growers for this year don't know how frustrating it is, not to just grow a crop of barley like it was feed, but to get the correct plump, germ and colour in the last seven days while it is still in the field. How careful you have to be with nitrogen, plant stand, etc and still achieve malt specs, as loosy goosy as they are.

Once the best is gone the best is left, that has been the "selection program" the maltsters are used to and it will be a tough time for them to realize it is in the best interest of the farmer not to contract this way any more.

A human pea contract can be made for the fall, but the Act of God clause will limit the price. This should also occur in malt. Real criteria for the contract instead of this joke of a system we have been using - grading at times based on your address.

I would hope malt captures a premium in the future, otherwise why bother growing it? Less yield and low protein for feed value does not make good feed or good econimic margin. Good thing the feed industry has yet to catch on that a tonne of barley can vary more than just bushel weight in terms of feed value.

Anyways, Blair, I hope you are very wrong in your prediction of the malt industry. If getting an open market achieves parity of malt prices with feed, I'm afraid we have missed the boat.

Historically malt prices with the CWB have averaged well against feed prices. The trick for now is what needs to be put in place now to ensure malt is a value added crop, not another priced as par with feed crop as you are predicting! Specialty canola and other pea and bean - even some wheat crops are examples of value added with real contracts and real specs.

Huge issue yet to be addressed in this new environment.

I'm also thinking most of the farmers that post here have never grown malt.

[wd9]

WD9 -- I'm very positive about the future of malting barley in western Canada in a market choice environment. I think we'll see an expansion in the prairie malting industry and stronger overall returns for farmers.

Over the longer term, the malt premium will go to whatever level is necessary to induce farmers to grow it -- to compensate for all those "frustrating" factors you talked about. Of course the malt premium will vary in any given year depending on the amount of malt barley that is available.

One thing I will say - in an open market, you won't be see malt barley prices lower than feed on any given day. (Take a look at the Montana chart). That's not something you can say today under the CWB regime.

[lohner]

Just_wondering.
Maybe you could have asked what other monopoly or near monopoly does not take the production risk, or own it from the begining???
The CWB truly is a rarity.

[wd9]

lohner, good question. Although the thing that escapes most is that the problem with malt wasn't really with the CWB as much as with the contracting and freelance downgrading to feed of 'selected' barley. You never knew for what reason you got feed, at least a good one was never given.

Even the CGC complained that the CWB and the maltsters knew that it wasn't science based grading and that although there was always malt for the industry, it was not an realistic contract because you always hoped you would get malt, not be sure your own barley made the malt spec - which didn't exist.

Selection in the fall took risk from the farmer and placed it in the pool. This was reflective in the price in the end, much like doing the same with a human pea contract for the fall, less price because someone has to take the risk, and with peas that risk is shared. Like I said earlier, the CWB prevented the premium to individual growers and I should have also said prevented the penalties to individual growers whose barley never made malt. Pooling by definition.

The 'honeymoon' of no CWB will wear off very quickly when farmers realize there is little benefit in growing malt and they go back to canola and wheat.

The question is what can be done to ensure there is truly value added pricing to malt to being more than just a little than feed? This takes vision and some planning, so what is it? It sure is a lot easier to complain about the CWB than to come up with good strategies. That generally has very few posts.

For discussion:

1. Science based realistic criteria for what makes malt, not just on a whim grading.

2. If you make a contract for malt, you had better provide malt or be given huge penalties. This will ensure the value of malt and put risk back into the equation. Without risk, as it is now, there is no profit.

3. We don't have to be like the US.