Wanted: More Cheap Barley

[Burbert]

parsley; Gloat till you bloat, from the looks of it, you seem to think that you have the CWB on the ropes and are going for knockout punches, with all the weird rants and raves that currently appear on the barley issues. Who should we sue if barley prices continue to drop and drop, if the malty's don't start beating down our doors? Oh well, to bad, so sad the farmers lose again, just when, things seemed to be poised to get better, even with the involvement of the CWB..... @#$%$#$$%$%%$$% Bye the bye how is the world of organic malt progressing these days, bet it is just ducky eh!

[AdamSmith]

Chaffmeister, are we talking only about 06/07 malt barley contracts? or are we talking about 07/08 and beyond malt barley contracts?

Because if this is only about 06/07 contracts, what's different about this time than every other time the cwb returns have been poor compared to the domestic feed price, and farmers welched on their contracts and delivered for better money into the open domestic feed market?

Were the malsters demanding compensation in those other years?

This all just seems too bizarre, and to have such a staunch open market advocate like yourself defending a bad deal for farmers is a bit disconcerting.

So as far as 06/07 goes, the claim for compensation is completly bogus at this stage because how can any claim be made until the crop year ends and you know what the level of loss actually is and if there is in fact any loss at all, right? And if there is a large loss, get it out of the contigency fund that way it leaves less there for the cwb to fiddle with.

As far as 07/08 and beyond, the malties were nothing but suckers if they thought the cwb could deliver on any terms that may have been so sweetly negotiated.

Either way it's time for the Cargill's of the world to turn the page and get on with business and start building goodwill towards the growers of the barley.

I'll support Cargill when they are acting in the best interests of farmers, but in this instance they clearly are not being seen as acting in the best interest of farmers.

But I guess when it comes to the malting industry, old habits die hard.

By the way if the malsters can sue for damages because of non compliance to a contract,

Can I (as a farmer) sue the malsters for non complance as well, when I stored accepted malt for over a year only to have them refuse to take it in 2005/06 and I lost good opportunity to sell earlier in the feed market?

I wonder how many millions of farmers dollars have been lost under that scenerio?

[chaffmeister]

AS:

There are clearly two issues here: first, the issue of the ridiculous, effectively unmanageable contracting scheme that the maltsters have had to put up with under the CWB. And second, the issue of how Cargill et al are approaching it through the transition period.

<b>FIRST:</b> It doesn’t matter which crop year we’re talking about – 06/07 or 07/08 – or 02/03 for that matter. The CWB contracting scheme for processors has been flawed for years. Prior to 02/03, it worked reasonably well for maltsters because the feed market never really threatened the malt market. But in 02/03 the maltsters got their first real taste at how poor the CWB system is. And they’re getting it again right now.

Think about it for a moment - as a maltster. You’ve sold malt and “covered” it from the CWB (or so you think) – back-to-back. No other tools or price mechanisms are in play – or even available. And as you try to complete the purchase/sale, you find you have to pay more than you contracted for with the CWB - but of course you can't raise the price of the malt to compensate. This comes right out of your bottom line. The price on the original contract with the CWB is meaningless.

In what other industry are materials bought under contract but the “agent” setting the price for the suppliers is not held accountable when the suppliers choose not to supply at the negotiated price?

I’m sure you remember that no less than three US malt companies were considering building malt plants in Western Canada a while back. What happened to the Canadian maltsters in 02/03 at the hands of the CWB system clearly played a role in putting an end to those plans. Who would invest under those terms? Would you?

<b>And Parsley and others think the maltsters want to keep this system around forever!?</b>

Before you suggest how stupid the maltsters are, consider this. As a maltster, you’ve never had a problem with getting barley from farmers under the CWB system before. The malt premium always took care of that. And even if you’re smart enough to think that it may happen sometime, you’re far too busy running a business to try solving a problem that has never occurred before and may not ever. And even if you’re smart enough to come up with a solution, you still need to get the CWB to agree to make the appropriate changes. And that’s gonna happen real quick, isn’t it?

<b>This is not about keeping malt barley prices low.</b> Those that think the CWB “gravy train” is all about low prices should stop and think.

How can you acknowledge the existence of the “malt premium” as we’ve seen for years and years, and yet also make the “leap of suspicion” that the maltsters want the CWB around to get cheap barley? How does that add up?

Do you think that while the domestic brewers are “complaining” about <b>high malt prices</b>, the maltsters are actually enjoying <b>cheap barley prices</b>?

If the maltsters have been getting “cheap barley" all these years, why has Canadian malt capacity utilization and exports dropped? With “cheap” barley, shouldn’t the maltsters be humping along at capacity and exporting like hell? Shouldn’t "cheap barley" attract new investment?


<b>SECOND:</b> Why has Cargill (Prairie Malt) and Canada Malt chosen NOW to complain and threaten further action? And why are they trying to delay the open market?

I can’t answer that directly. But I’m pretty confident that they tried everything they could to get the CWB to comply/assist/honour their contracts – before going to Ottawa.

If Cargill is trying to get the open market delayed to get compliance and closure on <b>existing</b> contracts – I say go for it. It is clearly not the best route to take but I don’t see that as Cargill’s fault. The feds clearly did not factor this event in their “transition plan” and seem reluctant to satisfy the needs of the market through the transition. And the CWB seems blind to any culpability or responsibility. BTW – as I’ve said before, the most favourble outcome would be the CWB paying market prices to farmers for new deliveries of malt barley to satisfy existing contracts. (And this should be done without lowering the PRO or the ultimate pool return.)

The policy/regulation change by the federal government has created a situation where the CWB is taking a position that it can’t (or won’t) do anything to help the industry through the transition. (Just look at Gord Flaten’s comments.) Under the circumstances, where is Cargill – or anyone else in this situation – supposed to go to get relief from a change in policy/regulation/posture, etc? At a bare minimum, Cargill’s action has gotten the industry focused on the issue and has vilified the CWB further. Is that such a bad thing?

Now if Cargill is trying to get the single desk extended for some form of corporate gain beyond existing contracts, I certainly would not support it. But without hard evidence that’s a “leap of suspicion” that I can’t make.


TAKE NOTE AGAIN: This is not about wanting to pay farmers less than what the stuff is really worth. It’s about managing a business in an unmanageable environment (the transition to an open market).

As for Cargill’s “claim” for damages:
Why are you guys so upset about Cargill wanting to claim with the government or the CWB for losses? “Bogus” was the term you used. But isn’t it better than delaying the open market? And doesn’t it tell you that Cargill is considering its options and isn’t stuck on extending the single desk, as Parsley seems to believe?

And further, you don’t need to know the actual level of loss before you determine how it will be covered. If the government or the CWB protected the maltsters at the CWB-contract price, and the maltsters then went out and paid market prices, it would be a simple calculation, right? But think about this: if Cargill doesn’t get a firm idea of what the government and/or the CWB will do, there may be other options for them to consider that may not be as good for farmers or for the industry. (Remember in 02/03 the maltsters paid Danish farmers big premiums – not Western Canadian farmers.) At least the current discussions could eventually lead to farmers getting market prices for malt barley. If the idea of the CWB paying market prices were supported by farmers, it could be a reality much sooner than by fighting it (by attacking Cargill).

And I agree about using the Contingency Fund – much of which came from the barley pools anyway.

Re your comment <i>This all just seems too bizarre, and to have such a staunch open market advocate like yourself defending a bad deal for farmers is a bit disconcerting.</i>

First, I’m applauding commercial culpability and responsibility - as any staunch open market advocate would.

I don’t see ensuring a smooth transition to an open market as a bad deal for farmers. Neither the CWB nor the government is doing what is necessary. Under the circumstances, it makes sense to expect some bumps along the way.

Farmers are losing right now as there are some excellent market opportunities that few if any traders are grabbing because of the "transition".

What I find bazaar is that choice-farmers, immediately upon entering an open market, are vilifying those that they’ve yearned to work directly with for so long. Wouldn’t it make more sense to push together in the same direction – toward a smooth transition to the open market?

I don’t see how Cargill’s natural reaction to being painted into a corner by the CWB and the government is any indication of being anti-farmer.

All I am doing is supporting the idea of an open market – one where contracts mean something and all the players are free to act in their own best interests. And thankfully, there are usually a number of options for them to select from. Now I only hope that this government eventually sees that its posture on this very topic will go a long way to demonstrate the type of market we have. And hopefully it will do the right thing to encourage more investment in the future.

So far it has failed.

[parsley]

Thanks for identifying one of the problem, and providing the answer.

PROBLEM:
"I don’t see ensuring a smooth transition to an open market as a bad deal for farmers. "

ANSWER:
"And I agree about using the Contingency Fund – much of which came from the barley pools anyway"

I provided the translation and encapsulation, I hope you don't mind, considering the cFund is considered by some as public domain.

TRANSLATION:
Taking money out of the contingency fund means FARMERS PAYING.

ENCAPSULATION:
So, if there's a problem, some want to let farmers pay because Cargill needs a break. So does Pioneer and P&H. The CFund isn't for farmers anyhow.

Parsley

[chaffmeister]

Parsley - follow the money.

Contingency fund was built by "taking" money from farmers.

Using the contingency to PAY FARMERS current market prices for malt barley puts this farmers' money back into farmers' pockets.

And this is a bad thing?

[JohnKenneth]

chaff, you provide some valuable insights and obviously have done a lot of thinking about the transition of the barley industry. but amidst all the detail and opinion, you fail to convince me that the malting companies didn't take a big, stupid risk in buying and re-selling that malt for 07/08 in the first place. and yes, i understand about back to back sales and the rest of it - point is the regulatory change was known before the cwb started contracting 07-crop barley.

not a big deal; just a simple difference of opinion, but in reading your post carefully a light bulb finally went off in my head about what's funny-sounding in some of your posts - you are not or ever have been a farmer. not saying you don't sincerely think you have our best interests at heart, you just know and care a lot more about the 'industry', private commercial companies in particular, than the perspective of a farmer-seller.

[BennyHin]

RE: Contingency fund:

Parsley, as Chaff already mentioned, you need to research your facts. Check the CWB's Annual reports, or call them. They will tell you where the contingency surplus was generated. From what I understand, basis participation levels, it surely wasn't from barley.

With all your free time not having to spray for weeds and all, one would assume you would have time to research the facts.

I guess not. Well back to the soap operas, and David Anderson Blog spots......etc.

[wd9]

JohnKenneth, are you suggesting only farmers should post on this site?

What a tragedy of singlemindedness and small world-i-ness that would be.

[chaffmeister]

As of the end of 05-06, the Contingency Fund looked like this (by "source"):

Wheat PPO..........$24.79 million
Durum PPO..........$533 thousand
Des Barley PPO.....$715 thousand
Feed Barley PPO....$1.734 million
Barley interest....$16.5 million
Other sources......$40 thousand

"Barley" has provided $18.949 million to the Contingency Fund - 43% of the total.

[parsley]

1. Benny-Hinn, would you believe the WCWGA research? According to the Western Canadian Wheat Growers' Association, "over the past five years, the CWB board of directors has authorized the transfer of $15.2 million in interest earnings from the CWB malt and feed barley pool accounts into its contingency fund."


That's clear.

Thanks for your stats, as well, chaff. I consider chaff's research material @ dotted i's and crossed t's.(what he does with it....another post)

Unlike you Benny, I have never indulged in the soaps, as I didn't realize they linked to ag research. Would that be another Calvert-taxpayer project?

2.wd9, I agree with you. Agriculture affects farmers, agri-business, suppliers, and on and on; all have a big stake, and as long as they don't try to intimidate farmers off this website, I support and encourage their participation.

Parsley

[BennyHin]

Why was it that chaff was able to retrieve (some) stats and you couldnt?

Parsley: I told you these stats were available, but you were too lazy to research them.

By the way chaffs numbers arent correct, he is way off on the numbers.

Chaff needs to spend more time getting his barley stats correct, and spend less time promoting hog barn development, and a cheap feed barley policy.

[parsley]

BennyHinn,

I wouldn't dream of trying to compete with the research you do all the time.

We will be waiting with baited breath until you post your much-promoted results!

Parsley

[chaffmeister]

Benny:
My numbers are straight out of the 05-06 CWB Annual Report: page 82.

The only difference between the numbers I presented and the CWB's presentation is that I showed $16,500 as Barley Interest - the CWB shows it as Other. Anyone watching this knows that the $16.5 million was indeed from transferring interest revenue out of the barley pools into the contingency fund. This is described in the Annual Report on page 81 (bottom of the page).

If you want to be a real stickler, call it $16 million because $500 thousand is actually interest earned - on the contingency fund itself.

Also - the "Other" figure I showed - $40 thousand - is actually from the PDT program - Pre-delivery Top-up. Again, described for you in detail on page 81.

[TOM4CWB]

Chaff,

Benny was just trying to BLUFF...

I agree that the contingency fund can easily look after any problems the CWB has on barley.

Now the CWB just needs to pay a decent price for 06-07 malt barley... and have the barley delivered to the Maltsters. After all THE CWB ITSELF were to ones who drastically undersold the market.

The CWB sales dept. made this mistake; the contingency fund should pay. This is what it was meant to cover... MISTAKES.

[JohnKenneth]

to be clear, i value the trade's and everyone else's ideas on this forum as well. it was just an observation, maybe right maybe wrong.

maybe a topic for another post, but the point is relevant to me because i don't think the different types of participants all hav the same incentives in this business.