Sometimes I’m left just shaking my head…….
Don't leave farmers on the hook
Winnipeg Free Press
Ken Ritter
<b>comments in bold are mine.</b>
WHEN it comes to the hasty changes proposed for barley marketing, industry stakeholders are obviously concerned about defending their bottom lines.
It is unclear whose bottom line GrainVision chair Paul Orsak is concerned about, judging by his recent comments (CWB Meets Real World, May 31). It certainly isn't the farmers' bottom line, which is little surprise considering that the GrainVision group includes a number of large grain companies.
<b>I didn’t read Paul’s comments, but I know Paul and I know GrainVision – you can be sure that they all are concerned for the viability of the industry in which they operate, which includes concern for the bottom line of producers. For Ken Ritter to suggest otherwise simply shows how out of touch with reality he really is.</b>
By contrast, the farmers' bottom line is the only concern of the CWB, which sells their grain at competitive market prices with the exclusive goal of maximizing their returns. All sales' profits are returned to producers, which obviously does not occur through the grain companies.
<b>”exclusive goal of maximizing returns” This is a ridiculous statement. The CWB has often stated the purpose of price pooling is to mitigate risk by selling consistently through the crop year, selling in both the lows and the highs. This does not maximize returns. Studies have PROVEN that year-in, year-out the CWB’s sales performance is well below the average for the crop year. Also, the CWB system carries a huge price tag in terms of cost over a non-CWB system; the non-CWB system is just more efficient. If the CWB really believed it was maximizing returns, it would opt for a more efficient system – like the non-CWB system.</b>
Mr. Orsak not only ignores this crucial point, he makes the nonsensical statement that the CWB could offer a "reasonable price" and pay Canadian farmers "world values" for malting barley. In fact, the CWB does not offer farmers a "price" at all, but passes the entire profit back to farmers -- all gleaned from "world values".
<b>Mr. Orsak is right about what the CWB could offer. Since the CWB DOES NOT have a monopoly on Canadian barley, it does indeed “offer a price” – which is most often not competitive with other market alternatives for farmers. </ b>
Mr. Orsak surely knows that most farmers take a pooled return through the CWB. This means they receive the average of all returns achieved from all buyers of their type of grain, across the entire crop year. This is obviously different than a spot-market price, which is the going rate on a particular day into a particular world market.
<b>Again – the CWB sales performance is well below the average for the crop year. By accepting the pool return, farmers are accepting poor prices relative to the average for the crop year. This is non-debatable. And why does the CWB always talk about the spot price? Many farmers are sophisticated marketers and the spot price is often meaningless because they have often forward sold on a DDC, taking advantage of early pricing opportunities or price spreads that are more than enough incentive to store.</b>
He would do well to remember that the CWB's pooled return is often significantly higher than the spot-market prices. <b>WRONG.</b> It seems unlikely that he would be calling for "world values" to be paid to farmers for malting barley if that were the case right now. <b>Equally, it seems unlikely that the CWB would have an argument for delaying the open market since the pool price would look very attractive.</b> Instead, spot prices rose as the crop-year progressed because of severe drought in Australia that decimated its barley crop. The CWB certainly did not sell malting barley at prices below world market values at the time of sale. In fact, in most years, the CWB's strategy to compete with Australia by selling a large volume of malting barley early in the crop year has kept farmers' pooled returns high.
<b>What has Ritter been smoking! The CWB has always waited till the domestic maltsters were at least 75-80% covered and then - and only then - tried to make offshore sales. THEY NEVER COMPETE WITH AUSTRALIA BY SELLING FOR EARLY SHIPMENT IN THE CROP YEAR. We are lucky to have 1-3 vessels shipped before Christmas. If the CWB did ship in Sept/Oct it was always old crop that they carried over because they were trying to extract a higher price. Ken should get some guidance from the sales department before making erroneous and misleading public comments like this.</b>
In the real world, companies do default on contracts when it is impossible to fulfil them. What is making it impossible for the CWB to fulfil its malting barley contracts now is the federal government's announcement of an unexpectedly sudden shift to an open market for barley. This has been set to occur on August 1 of this year -- instead of in 2008 as suggested by the minister's own task force, of which Mr. Orsak was a member.
<b> What I don’t get is this: how would waiting for another day help? It doesn’t matter when you do this, there would be some commercial angst – contracts on the books that need fulfilling. If we were to wait until 2008 like Ritter suggests, we’d simply find ourselves in the same spot – the CWB would have stuff on the books that would need to be dealt with and they’d find a way to complain anyway.</b>
All of this has done two things. Firstly, it has made customers hesitant to buy barley through the CWB at current high prices, since they can see that they may be able to get better deals later when competing grain sellers duke it out in the open market. This means fewer sales can be made by the CWB at current high prices, which would otherwise increase the pooled returns to farmers.
<b>What a bunch of drivel! Some buyers are waiting because they don’t know if any contract they make right now with a grain company will be challenged by the CWB if the court challenge wins. The CWB is unwilling to make any more sales because they are unsure of how to operate in an open market (so says Ward Weisensel in a recent article). Ritter should pay more attention to what’s going on – there is business going on right now. Perhaps they aren’t dealing with the CWB right now because they finally don’t have to.</b>
Secondly, in a kind of Catch 22, farmers have been hesitant to deliver their malting barley through the CWB because of the relatively lower pooled values compared to the current spot-market prices, which some believe they can soon access.
<b>This is idiotic. Back in Feb the CWB released its new crop PROs. On 2row malt barley, the new crop PRO was $35/tonne higher than the old crop PRO. $35!!! This is a huge incentive to hold anything you have until new crop. The CWB’s own price signals told farmers to hold! And now they say farmers are not selling to the CWB because of the government! Give me a break!</b>
The situation has been worsened by comments from the minister himself which could be interpreted as encouraging farmers to breach their contracts with the CWB.
The result? A potential for defaulted contracts and liability claims that may end up being shouldered by farmers, who pay all the bills at the CWB and are in no way to blame for this debacle. The government, in its haste to change the marketing system, is causing this pain. The government must take steps to ensure that farmers are not once again left holding the bag.
<b>Ken – the potential for default would be there anytime you make this change – it has nothing to do with haste. It has everything to do with the market price action – if the market was plummeting because of excellent crops around the world, the CWB’s contracts would look pretty rosy and there would zero discussion about defaults.</b>
GrainVision could do farmers a service by insisting on this as well.
<b>By supporting the open market, GrainVision is indeed taking steps to ensure that farmers are not once again left holding the bag. Anyone with a good sense of logic can see that the CWB is holding farmers back.
Ken – take a message from Lee Iaccoca; “Either lead, follow or get out of the way”. I think its time for you to just get out of the way.</b>
Don't leave farmers on the hook
Winnipeg Free Press
Ken Ritter
<b>comments in bold are mine.</b>
WHEN it comes to the hasty changes proposed for barley marketing, industry stakeholders are obviously concerned about defending their bottom lines.
It is unclear whose bottom line GrainVision chair Paul Orsak is concerned about, judging by his recent comments (CWB Meets Real World, May 31). It certainly isn't the farmers' bottom line, which is little surprise considering that the GrainVision group includes a number of large grain companies.
<b>I didn’t read Paul’s comments, but I know Paul and I know GrainVision – you can be sure that they all are concerned for the viability of the industry in which they operate, which includes concern for the bottom line of producers. For Ken Ritter to suggest otherwise simply shows how out of touch with reality he really is.</b>
By contrast, the farmers' bottom line is the only concern of the CWB, which sells their grain at competitive market prices with the exclusive goal of maximizing their returns. All sales' profits are returned to producers, which obviously does not occur through the grain companies.
<b>”exclusive goal of maximizing returns” This is a ridiculous statement. The CWB has often stated the purpose of price pooling is to mitigate risk by selling consistently through the crop year, selling in both the lows and the highs. This does not maximize returns. Studies have PROVEN that year-in, year-out the CWB’s sales performance is well below the average for the crop year. Also, the CWB system carries a huge price tag in terms of cost over a non-CWB system; the non-CWB system is just more efficient. If the CWB really believed it was maximizing returns, it would opt for a more efficient system – like the non-CWB system.</b>
Mr. Orsak not only ignores this crucial point, he makes the nonsensical statement that the CWB could offer a "reasonable price" and pay Canadian farmers "world values" for malting barley. In fact, the CWB does not offer farmers a "price" at all, but passes the entire profit back to farmers -- all gleaned from "world values".
<b>Mr. Orsak is right about what the CWB could offer. Since the CWB DOES NOT have a monopoly on Canadian barley, it does indeed “offer a price” – which is most often not competitive with other market alternatives for farmers. </ b>
Mr. Orsak surely knows that most farmers take a pooled return through the CWB. This means they receive the average of all returns achieved from all buyers of their type of grain, across the entire crop year. This is obviously different than a spot-market price, which is the going rate on a particular day into a particular world market.
<b>Again – the CWB sales performance is well below the average for the crop year. By accepting the pool return, farmers are accepting poor prices relative to the average for the crop year. This is non-debatable. And why does the CWB always talk about the spot price? Many farmers are sophisticated marketers and the spot price is often meaningless because they have often forward sold on a DDC, taking advantage of early pricing opportunities or price spreads that are more than enough incentive to store.</b>
He would do well to remember that the CWB's pooled return is often significantly higher than the spot-market prices. <b>WRONG.</b> It seems unlikely that he would be calling for "world values" to be paid to farmers for malting barley if that were the case right now. <b>Equally, it seems unlikely that the CWB would have an argument for delaying the open market since the pool price would look very attractive.</b> Instead, spot prices rose as the crop-year progressed because of severe drought in Australia that decimated its barley crop. The CWB certainly did not sell malting barley at prices below world market values at the time of sale. In fact, in most years, the CWB's strategy to compete with Australia by selling a large volume of malting barley early in the crop year has kept farmers' pooled returns high.
<b>What has Ritter been smoking! The CWB has always waited till the domestic maltsters were at least 75-80% covered and then - and only then - tried to make offshore sales. THEY NEVER COMPETE WITH AUSTRALIA BY SELLING FOR EARLY SHIPMENT IN THE CROP YEAR. We are lucky to have 1-3 vessels shipped before Christmas. If the CWB did ship in Sept/Oct it was always old crop that they carried over because they were trying to extract a higher price. Ken should get some guidance from the sales department before making erroneous and misleading public comments like this.</b>
In the real world, companies do default on contracts when it is impossible to fulfil them. What is making it impossible for the CWB to fulfil its malting barley contracts now is the federal government's announcement of an unexpectedly sudden shift to an open market for barley. This has been set to occur on August 1 of this year -- instead of in 2008 as suggested by the minister's own task force, of which Mr. Orsak was a member.
<b> What I don’t get is this: how would waiting for another day help? It doesn’t matter when you do this, there would be some commercial angst – contracts on the books that need fulfilling. If we were to wait until 2008 like Ritter suggests, we’d simply find ourselves in the same spot – the CWB would have stuff on the books that would need to be dealt with and they’d find a way to complain anyway.</b>
All of this has done two things. Firstly, it has made customers hesitant to buy barley through the CWB at current high prices, since they can see that they may be able to get better deals later when competing grain sellers duke it out in the open market. This means fewer sales can be made by the CWB at current high prices, which would otherwise increase the pooled returns to farmers.
<b>What a bunch of drivel! Some buyers are waiting because they don’t know if any contract they make right now with a grain company will be challenged by the CWB if the court challenge wins. The CWB is unwilling to make any more sales because they are unsure of how to operate in an open market (so says Ward Weisensel in a recent article). Ritter should pay more attention to what’s going on – there is business going on right now. Perhaps they aren’t dealing with the CWB right now because they finally don’t have to.</b>
Secondly, in a kind of Catch 22, farmers have been hesitant to deliver their malting barley through the CWB because of the relatively lower pooled values compared to the current spot-market prices, which some believe they can soon access.
<b>This is idiotic. Back in Feb the CWB released its new crop PROs. On 2row malt barley, the new crop PRO was $35/tonne higher than the old crop PRO. $35!!! This is a huge incentive to hold anything you have until new crop. The CWB’s own price signals told farmers to hold! And now they say farmers are not selling to the CWB because of the government! Give me a break!</b>
The situation has been worsened by comments from the minister himself which could be interpreted as encouraging farmers to breach their contracts with the CWB.
The result? A potential for defaulted contracts and liability claims that may end up being shouldered by farmers, who pay all the bills at the CWB and are in no way to blame for this debacle. The government, in its haste to change the marketing system, is causing this pain. The government must take steps to ensure that farmers are not once again left holding the bag.
<b>Ken – the potential for default would be there anytime you make this change – it has nothing to do with haste. It has everything to do with the market price action – if the market was plummeting because of excellent crops around the world, the CWB’s contracts would look pretty rosy and there would zero discussion about defaults.</b>
GrainVision could do farmers a service by insisting on this as well.
<b>By supporting the open market, GrainVision is indeed taking steps to ensure that farmers are not once again left holding the bag. Anyone with a good sense of logic can see that the CWB is holding farmers back.
Ken – take a message from Lee Iaccoca; “Either lead, follow or get out of the way”. I think its time for you to just get out of the way.</b>
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