Barley Growers: Cargill and CWB are Welfare Bums

[chaffmeister]

Not really sure where this “discussion” is going. It started with Parsley taking a verbal run at Cargill. Now I seem to be the target.


Parlsey, it is truly regrettable that you’ve chosen to use hyperbole and sarcasm when attacking my comment that farmers are not forced to take “firesale” prices, as you put it. No one’s saying that the barley market is rosy under the CWB – least of all me. And you of all people should know that. (In fact, I know you know it.) You serve no purpose trying to embarrass me by trying to twist my words to suggest something different. My point stands – farmers are not forced to take firesale prices on malt barley. Thankfully, there is an open market option. But that’s why this market has been so dysfunctional. FWIW – I think the CWB does a lousy job in malt, but I really believe that is a different discussion.


You suggest the best approach for a company facing a threat of not honouring a contract is to wait and see what happens. I would certainly want the managers of my company to advise “the other side” what responses those actions (or inactions) will elicit. This is not a threat, its called communication. I’ve been involved in a number of squabbles where the initial messages between lawyers were exactly that – if you don’t do X by such-and-such a date, then we will have no choice but to do Y. Act accordingly.” It’s a common tactic – I wouldn’t characterize it as a threat, but that’s just me. You’re free to see it any way you want. But it doesn’t say that Cargill supports the single desk.


Parsley – you comment: <i>whoopdeedoo</i>.

This started as a discussion about Cargill’s tactics facing the loss of their malt barley contracts with the CWB. This is not about the pros and cons of the single desk. Please stay focused.


You said yourself <i>Do you suppose Prairie Malt would be whining on the Government's doorstep all last week if the contracts Robert Meijer had signed with the CWB were paying farmers $5.00 per bushel?

Right.</i>

First of all, the contracts Robert Meijer of Cargill signed with the CWB has very little to do with the price the CWB pays farmers; these contracts only price barley to the maltster, not the farmer.

By your sarcasm I assume you believe that if the contracts supported $5.00 prices to farmers, then Cargill wouldn’t be “whining”. You’d be right. If the contracts were high priced relative to the current market and the CWB walked away from them, I’m sure we wouldn’t be having this discussion. Which supports the notion that this is all about the outstanding contracts – not the single desk nor about getting farmers’ grain at “firesale” prices.


Parsley, about the maltsters you asked: <i>Are they bereft of risk management options?</i>

Under the CWB system, they are indeed limited. They price with the CWB because they are legally obligated to. And as Charlie indicated, the CWB is ultimately responsible for ensuring these contracts are filled.


Parsley, you said: <i> Commitments towards Cargill's contracts from the pooling accounts is the issue. NOT farmer held grain.</i>

You’ve absolutely hit the nail on the head. That’s what I’ve been saying all along. So where did all this other crap come from? You just feeling like you want an argument?


Adam Smith, you said: <i> if they haven't figured out how to function in the open market by now, they have no future in the barley business anyway</i>

Open markets. Contracts. Honouring commitments. All these fit together. Where do you think Cargill – who is sending a message that it EXPECTS to be treated responsibly by the CWB as it would be treated in ANY OPEN MARKET – is not understanding an open market? If anything it’s the CWB showing that it has no respect for standard protocols of commerce which include standing behind contracts.


Tom – Your comments suggest that the contracts were made at 60% of market value.

To be fair, I’m sure the contracts were made AT MARKET VALUES at the time. The CWB made sales that it thought would prove acceptable. They were wrong. The market moved.


I’ll end this little tirade with a response to Charlie’s question:
<i>Any thoughts on what an effective transition process might entail?</i>

My answer: the CWB needs to run an open program for malt barley offering farmers attractive prices relative to other options (domestic or export feed, export malt) to ensure it can comply with its commitment to the maltsters. Looking at the current market, this will most likely run a deficit but, so be it. Neither farmers nor maltsters should be injured by this policy shift. Paying maltsters “damages” would allow the maltsters to then turn around and pay market prices for malt against these sales; however, this is not as good an option as forcing the CWB to make good on their contracts by paying market prices to farmers (even with a deficit).

[charliep]

Chaffmeister

Should put elsewhere but interesting to look at early payment option premiums to see what hints this gives about the way the CWB percieves risk. It may also reflect cost to a certain extent.

I will note the 100 % malt barley EPO premium dropped from $6.50/tonne on April 17 when the PRO was $200/tonne (Select 2 row port) to $1.25/tonne today when the PRO is $192/tonne (port). A $8/tonne drop in the PRO only means a $3/tonne difference in 100 % EPO returns. This would reflect the CWB view of risk/ability to manage. It is also an indication of pool size/the opportunity they see for additional sales.

Likely thinking this through too much but interesting all the same.

The most recent EPO graph is at (page 11 and 22):

http://www.cwb.ca/en/farmers/producer/historical/pdf/2006-07/epocharts_042307.pdf

[TOM4CWB]

Chaffmeister,

"Tom – Your comments suggest that the contracts were made at 60% of market value.

To be fair, I’m sure the contracts were made AT MARKET VALUES at the time. The CWB made sales that it thought would prove acceptable. They were wrong. The market moved."

How are you so sure?

The CWB Pool delivery year starts for 06/07 about October 1 for most CWB crops.

The CWB says over and over... they are to sell a certain percent per month... equally for the duration of the pool year... to get an average price for "designated area" growers that reflects disciplined pool sales.

We knew the Ausies and EU were in really big trouble by the last week of August 06. So did every other grain merchant who cared... as did the Brewers.

Why on earth did the CWB sell 2/3rds of the 06-07 malt barley early... and all the 07-08 malt pool 1 year early?

To be close to $100,000,000 short.... they appear to have sold the 07-08 crop before the CWB Minister even said we needed a plebiscite...

Many said "designated area" Barley would be released by Jan 1 2007.

I knew the CDN Malt industry was laughing at growers by October 06... saying that delay of delivery was not possible into fall 2007... because they had already bought the 07 crop as well.


I must respectfully disagree...

Any sane normal barley grower watching this CWB Action on sales... who was remotely concerned with uncovered CWB forward barley sales... especially after what happened... & what we should have learned from 2002...

Would conclude this was a deliberate intentional vindictive move by CWB managers to injure barley growers and the Conservative Government... both of whom are known as public enemy #1 to the CWB.

[TOM4CWB]

Chaff:

Do you remember who wrote this?

"The reason that the market is in “apparent” disarray is because the CWB is being stupid and vindictive, having exposed itself to the vagaries of the market by shorting the market in a big way. It is doing everything it can to extract the maximum pain on any players in the malt barley market. It has threatened to walk away from new crop sales because they are too low priced to be able cover in a choice market. (Contributing to Cargill’s position of delay the switch over to a choice marketplace.)

Even in a single desk environment, these sales were made too low with no backstop. Don’t forget – the CWB operates in a dual barley market already – so single desk or not, the CWB is snookered already for next year. Someone at Cargill needs to realize that even with the single desk in place, they will have a tough time getting barley from farmers this upcoming year. You know, just like this year."

[parsley]

Cargill went public to Reuters, so they obviously decided to go political.

Going political meant that quiet negotiation was not their option of choice.

Parsley

[cropduster]

Parsnip...haven`t called him yet but is this the same Rob Meijer who used to work for CFIB?

[chaffmeister]

Tom - 'twas me that said "these sales were made too low with no backstop".

I guess I should have said too low RELATIVE TO THE CURRENT MARKET, AS IN NOW.

I didn't mean too low RELATIVE TO THE MARKET AT THE TIME of the sale. There's a big difference.

No doubt about it - these sales were made AT THE MARKET at a time when many factors were pointing to higher prices.

[TOM4CWB]

Chaff,

Who in their right mind would sell someone elses product and property:

a)below the cost of production,

b)without any backstop a year before it is produced,

c)knowing with a high probability they were going through a radical structural change that would fundementally change their ability to supply in any event,

d)knowing without being competitive at the time of delivery from producers they couldn't get supply in any event...

e) that have bylaws governing them saying they are to respect Commonlaw rights of the producers they are supposed to be maximising returns for which include, but are not limited to:

i) That for every wrong there is a remedy,

ii) The end does not justify the means,

iii) Fundamental principals cannot be set aside to meet the demands of convenience or to prevent apparent hardship in a particular case,

iv) Ignorance of these laws is no excuse for breaking these laws,

v) Two wrongs do not make a right, and

vi) One can enlarge the rights of the producers, however they cannot be taken away without their informed consent.

What CWB sales person, and CWB manager and CWB DIrector responsible...

In good faith...

Would do what was done and say they were "maximising" the value of growers assets and earning ability of those they claimed to be working for; CWB "designated area" barley producers?

[TOM4CWB]

Chaff;

The CWB obviously had the ability to create this market... because they signed contracts selling this grain.


Therefore You could make the claim you just made.

That CWB management didn't have the legal or moral authority & right to make these sales in the first place...

Is certainly a question that needs to be answered!

ANd for Maltsters that are on the other side of these "contracts"... they no doubt had to know what an awful P.R. and moral dilemma they would be placing themselves in...

And that holding such a contract would have a large "cost" in "good will" with the very grain producers, they need serve, to be in business in the future.

[charliep]

Is the discussion about old or new crop?

Old crop - Farmers should be delivering the amount they contracted this last fall. If they don't, the CWB/maltsters should be chasing them (including assessing penalties/taking legal action). If the CWB/maltsters are short the market (don't have enough contracted with farmers to cover their sales to breweries/exporters), they need to get a price signal out that is competitive with the feed market. If they want to add additional sales, ditto the comment on being short - they need to signal marketing opportunities to farmers. In every sense, the market is functioning the way it should.

New crop - Everyone has 6 months to organize their business for the new world. There are lots of contracting risk management strategies that are/can be used. If prices go up, obviously the maltsters will want to act on the CWB contracts (both need a strategy). If they go down, the issue will be a mute point (depending on their risk management strategy). The big thing is to get the decisions made and allow people/businesses to adapt.

[GrainVac]

Isn't the contigency fund designed to off-set hedging/sales problems like this one?(haha) Clearly not, but I'm willing to bet that the money goes to offset some of malt barley sales/contracts that no producer seems to want to help the CWB fulfill at this time. Maybe cost-share proposal from federal government like all their other ag programs???50/50 or 70/30

[parsley]

charliep logic 101:

"Old crop - Farmers should be delivering the amount they contracted this last fall. If they don't, the CWB/maltsters should be chasing them (including assessing penalties/taking legal action). If the CWB/maltsters are short the market (don't have enough contracted with farmers to cover their sales to breweries/exporters), they need to get a price signal out that is competitive with the feed market.

If they want to add additional sales, ditto the comment on being short - they need to signal marketing opportunities to farmers. In every sense, the market is functioning the way it should."


Have you tried patenting your logic, charliep?

Parsley

[chaffmeister]

The only thing missing in the old crop market Charlie is the CWB putting those proper price signals out there.

[TOM4CWB]

Charlie,

My comments were respecting 07-08, which Prairie Malt says Maltsters are going to be short nearly $100m to buy...,

from "Designated Area" barley growers...

The contacted barley they signed for in the fall (OCT) of 06 with the CWB.

OK, a bad decision was made to sell the 06-07 crop early in July 06, that was one thing...

07-08 sold in October 06 appears very vindictive and hurts barley growers if they are expected to take the almost $100m hit on malt alone.

This kind of sale can suck down all domestic feed prices... and has the probability of a huge multiplier effect that reduces other feed prices in the economy.

And anyone wonders why SM5 supports the CWB?

CWB=CHEAP FEED PRICES.

[charliep]

Perhaps should ask the maltsters where the number comes from. You take whatever the number is and divide by annual domestic maltster purchases (plus some sales to the US) to come up with a cost. Under the arguments presented, this is a net drag/loss to the 2007/08 pooling year. Farmers should be happy to walk away from this business (after all you didn't sign the original contract). Don't know why the tax payer would be asked to pay either.

In a more positive note, I think the March 2007/08 malt barley PRO was realistic and accurately reflected the price maltsters paid for new crop. The value is supported by the innovative minimum price contracts maltsters offered over the past winter (I assume there is some logic to $4/bu 2 row malt barley).

So the real issue is how the maltsters and the CWB package the business on the books and market this program to farmers. Both can use appropriate hedging/other tools to manage their risk using tools like the futures markets. The farmer will not to forced to do this for them anymore.

I also note wd9 discussion on grading/selection issues. These issues will have to be dealt with as well versus the current view that I (the CWB and maltsters/exporters) can pick the best 2MMT out of potential 6 to 8 MMT of production. Maybe the results of the barley plebiscite reflecting frustration here as much as the issues around single desk.

A final note is the assumption that maltsters and the CWB are great buddies. Been at enough meetings with both to note this is not the case. Necessity makes for strange bedfellows.