Wheat Marketing issues

[craig]

Had an interesting discussion this morning re wheat marketing problems the CWB has. Apparently India has set out some fairly high wheat tenders with delivery soon. It was pointed out that new crop winter wheat could fill some of this tender at high values( around $6.00 per bushel). Would seem like a straight forward situation except for the politics involved. You would assume that if winter wheat could fill this tender at these high values the winter wheat producers should be rewarded. The problem lies in that the CWB does not want returns for winter wheat to be above those of hard red spring. Depending on the amount of forward selling the board has done this is a likely senario although I guess it could be argued that the board has the right to distribute wheat returns in the pool accounts as it sees fit. There is a suggestion that the board will offer wheat contract tenders to producers similar to the feed barley contracts but not until next year. It would seem that we have another situation where the board has a struggle to access market opportunity and get the right signal to producers.

[AdamSmith]

"Would seem like a straight forward situation except for the politics involved."

craig you summed up our entire dysfunctional industry in one very insightful sentence.

[btjadenlepp]

"I guess it could be argued that the board has the right to distribute wheat returns in the pool accounts as it sees fit."

My understanding is that this happens fairly regularly, i.e. that they can and do regularly cross-subsidize within each pool. i've heard about it being done in similar cases to this in the past, to keep mid-grade returns at an 'appropriate' discount to the high-quality stuff that their reputation is built on. there's no question the market development contracting program premiums (eg. navigator, snowbird, etc.) are another example, since they're used specifically to generate a supply base to test on the market before there is premium-priced demand.

bummer for those of us looking for higher winter wheat prices though. doesn't seem right that it's only worth $4.15/bu today under the FPC.

[kamichel]

I don't get it. Why should the CWB have a problem selling grain into a higher value market, eg. winter wheat to India? If true we can consider market opportunity lost and more grain sold into ethanol and feed market. Does it have something to do with the fact that the fixed price has that pooled price basis worked into it? No one will sell to the board at that price to supply a specific market also assuming more risk and dockage, etc. So that leaves us with the board has no tool to connect us with a potentially good market. Well I guess until next year possibly.
Btlepp I sum up the board as being 2 years behind, not really ahead of the game. Why shouldn't basis change daily?
Would that not give better price signals to producer? Better prices? More markets?

[btjadenlepp]

they don't have a problem selling winter wheat to india at good prices, the problem is in transfering that value back to individuals. wouldn't be fair to those who dumped all the nitrogen on their snowbird.

yes the problem is in the basis. note thought that some don't consider equality in pricing to be a problem - i prefer transparency because then we can respond to the signals, but if you don't care to try interpreting them then the pool and its derivatives (fpc-with-mucked-up-basis) seem to work well.

the local basis is supposed to be the basis in the next-use market (fob vancouver for example) less the costs to get it there (freight, handling, cleaning, etc.). the cwb basis is the difference between the futures and the pro, with the pro driving the fpc and not the other way around. what we think of as the 'basis' in board-speak is deductions.

[charliep]

Just working on a pooling marketing manual article (Lee will be happy) and one of the principles of this process is to remove the impact of timing of sales. The pooling argument would be you could sell all the winter wheat early in the crop year at high prices and most CWRS later in the crop year at low prices - prices for mid quality wheat (at least in the CWB's mind) would exceed the payment for their best high protein spring wheat. Just the messenger so don't shoot me.

The CWB has to be creative and innovative in contracting programs rather than simply applying tired old principals from 50 years ago. Separate pools for the different wheat classes. More innovative identity preserved programs that are related to customer needs/reflect value versus simply pulling a premium out of the air. More effective cash programs that reflect spot market selling opportunities and can be used by grain companies to enhance delivery signals.

Note that the comment in the press is the CWB board will consult and get the staff working on new pricing options. Not new topics/lots of work has been done including consulations with groups like the Alberta winter wheat producers commission. Time for action - not talk. If they don't, the CWB will be in a situation of reacting to increasing ethanal consumption versus driving their own direction.

[Lifer]

funny high protein snowbird was used as an example of crop CWB would want to remain fair too. I understand there is more opportunity in the white wheat market and the CWB has not responded well to it. It seems like they have stood in the way of innovation around white wheat to protect their beloved Hard red.

What is quality? This notion that the highest quality wheat is high protein and hard red is just wrong. Also that because it is the highest quality it has to receive the most pay. There are different needs in the marketplace.

Systems or people that can respond should see an opportunity to be rewarded.

[charliep]

btjadenlepp

Note you are referring to the fpc. Daily price contract (Accepting process still not visible/CWB has a strange way of managing the pools basis risk that costs farmers who use money) addresses some of the issues you raise. The program started out at 74,000 tonnes out 500,000 tonne in 2005/06, contracted the 500,000 by July 18 (?) in 2006/07 and sold out in 1 1/2 hours in 2007/08 on June 18. A very solid signal of what farmers what and supported by this years CWB producer survey.