Dear Charlie,
As said in the other thread: The CD Howe Institute report is not fairly representing the losses 'designated area' growers of wheat incur.
The INSTITUTE REPORT VASTLY UNDERESTIMATES LOSSES caused by the CWB.
SO what is the CWB response?
Here it is:
Objectivity, accuracy missing from new report on CWB
Winnipeg – Prairie farmers deserve objective and accurate assessments of CWB performance, CWB president and CEO Ian White said today. He expressed disappointment that a new report from the C.D. Howe Institute falls far short of that mark.
"Farmers are not well served by another report based on false assumptions and oversimplified numbers," White said, adding the CWB is committed to accountability through measurable performance results, developed in 2003 and directly reported to farmers each year.
The C.D. Howe "e-brief" compares daily posted Montana elevator prices for wheat to returns from a now-obsolete CWB pricing program, claiming this serves as a window on the CWB’s overall performance. "This represents a fundamental misunderstanding of the program and the CWB's task in marketing Prairie farmers' grain," White said.
To reach its conclusions, the paper also assumes that the entire western Canadian wheat crop could be sold into the U.S. at posted U.S. elevator values. This is not possible, nor do posted values consistently reflect actual pricing opportunities available to farmers.
In fact, CWB pooled returns to farmers in 2007-08 were more than $1 a bushel higher than those earned by most American spring wheat and durum producers. Using weighted average receipts published by the U.S. Department of Agriculture, the CWB estimates Prairie wheat farmers earned at least $560 million more than their U.S. counterparts.
Comparing returns is problematic, White noted, given the challenges for Canadian producers who must market their grain to a far more diverse global customer base. The U.S. market accounts for only 10 per cent of western Canadian milling wheat sales, with 80 per cent exported overseas. American protectionism has also made U.S. market access challenging for Canadian agricultural products, including hard red spring wheat – which was shut out of the U.S. market from 2003 to 2006 by a high tariff wall.
"American grain elevators might be located in close proximity to many Canadian farms, but our wheat economics are fundamentally different," he said. "This would be true no matter what marketing system were in place for Western Canada."
Because U.S. spot prices are not a valid comparison, the CWB has worked to create other meaningful benchmarks, without revealing confidential sales data to competitors. For the past four years, the CWB has used a broad set of measures developed to provide numerical performance results that are published in its annual report and mailed directly to farmers in its "Report to Producers".
"It is a priority for the CWB and its board of directors to find improved ways to demonstrate its value to farmer stakeholders," White said. "This work will continue."
More information about wheat prices, western Canadian wheat exports to the U.S. and the flaws in the C.D. Howe report are contained in the attached two-page backgrounder.
Controlled by western Canadian farmers, the CWB is the largest wheat and barley marketer in the world. One of Canada's biggest exporters, the Winnipeg-based organization sells grain to over 70 countries and returns all sales revenue, less marketing costs to farmers.
-30-
For more information, please contact:
Maureen Fitzhenry
CWB media relations manager
(204) 983-3101
Cell: (204) 227-6927
maureen_fitzhenry@cwb.ca
Backgrounder:
Market fundamentals create an intrinsic price advantage for U.S. wheat, making price comparisons largely meaningless as a performance measure for the CWB. However, in order to demonstrate the advantages of the western Canadian marketing system during 2007-08, the CWB conducted a carefully balanced price comparison, showing that pooled returns to Prairie producers were higher than returns to most American spring wheat and durum farmers, despite the built-in disadvantages for Western Canada.
The CWB compared 2007-08 pooled returns for No. 1 Canada Western Red Spring wheat (13.5-per-cent protein) and No. 1 Canada Western Amber Durum (12.5-per-cent protein) to the USDA weighted average monthly returns for farmers in North Dakota and Montana for Dark Northern Spring wheat with 14 per cent protein and for No. 1 Hard Amber Durum. The American returns were weighted to reflect delivery volume in specific months (recognizing that certain months attracted much higher volumes of delivery than others).
The spring wheat results, in U.S. dollars, showed returns of $6.88 and $6.70 per bushel in North Dakota and Montana, compared to $8.32 per bushel in Western Canada. The durum results showed returns of $10.80 and $8.34 per bushel in North Dakota and Montana, compared to $12.14 in Western Canada. Overall, as a conservative estimate, Prairie farmers earned at least $560 million more for their spring wheat and durum than their American counterparts.
There are a number of incorrect assumptions contained in the report by Sylvain Charlebois and Richard Pedde, released today by the C.D. Howe Institute. These include:
The CWB’s Daily Contract (DPC) price series. The report compares returns under the former DPC pilot program to posted U.S. elevator prices. It argues that because DPC prices were lower, this demonstrates CWB underperformance. In fact, daily DPC prices were calculated to take into account differences in the western Canadian and U.S. systems, in particular how farmers are paid for their grain. These calculations resulted in factors such as typical western Canadian trucking premiums and U.S. quality discounts being deducted from the posted elevator prices. A difference between DPC prices and Montana spot prices reveals nothing about CWB performance.
U.S. spot prices. American spot elevator prices are not representative of actual farmer returns. Spot elevator prices at most represent an indicated opportunity that does not account for actual farmer pricing behaviour, or even actual pricing opportunities available.
The Gray benchmarking process. Contrary to the claims of the report, its methodology does not mirror a benchmarking calculation developed by agricultural economist Dr. Richard Gray. The C.D. Howe report does not account for the CWB’s effect on the U.S. prices against which it is measured, nor the capacity of the U.S. market to absorb additional Canadian grain without downward price pressure. The report incorrectly assumes an infinite depth for agricultural cash markets. In reality, elevator cash prices are sometimes high because there is no available grain.
Factors omitted. The report ignored the fact that Canadian farmers can only access the U.S. premium market after incurring transportation costs that disadvantage them relative to U.S. farmers. The use of regional average prices for Montana limits the authors’ ability to adjust prices to reflect local market conditions (e.g. North Dakota or Montana), thereby ignoring U.S. farmers’ geographic advantage proximate to Minneapolis-area mills and additional Seaway costs for Canadian movement to eastern export positions. It also fails to note that U.S. protectionist trade action has made access challenging and resulted in Canadian farmers’ exclusion from the U.S. wheat market from 2003 to 2006.
CWB benchmarking. The authors imply that the CWB discontinued the Gray benchmarking process because it would show poor performance. This is incorrect and ignores the fact that a comprehensive benchmarking process has continued to improve CWB transparency and accountability to farmers. Performance benchmarks have been included in CWB annual reports and "Reports to Producers" since 2004.
Timing of sales. The concluding section of the report implies that the authors view timing of sales as the predominant way that CWB sales should be evaluated, ignoring other strengths of the single-desk system."
THese are could easily be interpreted as fraudulent mis-statements... if a securities commission were to analyse this... if there were CWB shares...
As said in the other thread: The CD Howe Institute report is not fairly representing the losses 'designated area' growers of wheat incur.
The INSTITUTE REPORT VASTLY UNDERESTIMATES LOSSES caused by the CWB.
SO what is the CWB response?
Here it is:
Objectivity, accuracy missing from new report on CWB
Winnipeg – Prairie farmers deserve objective and accurate assessments of CWB performance, CWB president and CEO Ian White said today. He expressed disappointment that a new report from the C.D. Howe Institute falls far short of that mark.
"Farmers are not well served by another report based on false assumptions and oversimplified numbers," White said, adding the CWB is committed to accountability through measurable performance results, developed in 2003 and directly reported to farmers each year.
The C.D. Howe "e-brief" compares daily posted Montana elevator prices for wheat to returns from a now-obsolete CWB pricing program, claiming this serves as a window on the CWB’s overall performance. "This represents a fundamental misunderstanding of the program and the CWB's task in marketing Prairie farmers' grain," White said.
To reach its conclusions, the paper also assumes that the entire western Canadian wheat crop could be sold into the U.S. at posted U.S. elevator values. This is not possible, nor do posted values consistently reflect actual pricing opportunities available to farmers.
In fact, CWB pooled returns to farmers in 2007-08 were more than $1 a bushel higher than those earned by most American spring wheat and durum producers. Using weighted average receipts published by the U.S. Department of Agriculture, the CWB estimates Prairie wheat farmers earned at least $560 million more than their U.S. counterparts.
Comparing returns is problematic, White noted, given the challenges for Canadian producers who must market their grain to a far more diverse global customer base. The U.S. market accounts for only 10 per cent of western Canadian milling wheat sales, with 80 per cent exported overseas. American protectionism has also made U.S. market access challenging for Canadian agricultural products, including hard red spring wheat – which was shut out of the U.S. market from 2003 to 2006 by a high tariff wall.
"American grain elevators might be located in close proximity to many Canadian farms, but our wheat economics are fundamentally different," he said. "This would be true no matter what marketing system were in place for Western Canada."
Because U.S. spot prices are not a valid comparison, the CWB has worked to create other meaningful benchmarks, without revealing confidential sales data to competitors. For the past four years, the CWB has used a broad set of measures developed to provide numerical performance results that are published in its annual report and mailed directly to farmers in its "Report to Producers".
"It is a priority for the CWB and its board of directors to find improved ways to demonstrate its value to farmer stakeholders," White said. "This work will continue."
More information about wheat prices, western Canadian wheat exports to the U.S. and the flaws in the C.D. Howe report are contained in the attached two-page backgrounder.
Controlled by western Canadian farmers, the CWB is the largest wheat and barley marketer in the world. One of Canada's biggest exporters, the Winnipeg-based organization sells grain to over 70 countries and returns all sales revenue, less marketing costs to farmers.
-30-
For more information, please contact:
Maureen Fitzhenry
CWB media relations manager
(204) 983-3101
Cell: (204) 227-6927
maureen_fitzhenry@cwb.ca
Backgrounder:
Market fundamentals create an intrinsic price advantage for U.S. wheat, making price comparisons largely meaningless as a performance measure for the CWB. However, in order to demonstrate the advantages of the western Canadian marketing system during 2007-08, the CWB conducted a carefully balanced price comparison, showing that pooled returns to Prairie producers were higher than returns to most American spring wheat and durum farmers, despite the built-in disadvantages for Western Canada.
The CWB compared 2007-08 pooled returns for No. 1 Canada Western Red Spring wheat (13.5-per-cent protein) and No. 1 Canada Western Amber Durum (12.5-per-cent protein) to the USDA weighted average monthly returns for farmers in North Dakota and Montana for Dark Northern Spring wheat with 14 per cent protein and for No. 1 Hard Amber Durum. The American returns were weighted to reflect delivery volume in specific months (recognizing that certain months attracted much higher volumes of delivery than others).
The spring wheat results, in U.S. dollars, showed returns of $6.88 and $6.70 per bushel in North Dakota and Montana, compared to $8.32 per bushel in Western Canada. The durum results showed returns of $10.80 and $8.34 per bushel in North Dakota and Montana, compared to $12.14 in Western Canada. Overall, as a conservative estimate, Prairie farmers earned at least $560 million more for their spring wheat and durum than their American counterparts.
There are a number of incorrect assumptions contained in the report by Sylvain Charlebois and Richard Pedde, released today by the C.D. Howe Institute. These include:
The CWB’s Daily Contract (DPC) price series. The report compares returns under the former DPC pilot program to posted U.S. elevator prices. It argues that because DPC prices were lower, this demonstrates CWB underperformance. In fact, daily DPC prices were calculated to take into account differences in the western Canadian and U.S. systems, in particular how farmers are paid for their grain. These calculations resulted in factors such as typical western Canadian trucking premiums and U.S. quality discounts being deducted from the posted elevator prices. A difference between DPC prices and Montana spot prices reveals nothing about CWB performance.
U.S. spot prices. American spot elevator prices are not representative of actual farmer returns. Spot elevator prices at most represent an indicated opportunity that does not account for actual farmer pricing behaviour, or even actual pricing opportunities available.
The Gray benchmarking process. Contrary to the claims of the report, its methodology does not mirror a benchmarking calculation developed by agricultural economist Dr. Richard Gray. The C.D. Howe report does not account for the CWB’s effect on the U.S. prices against which it is measured, nor the capacity of the U.S. market to absorb additional Canadian grain without downward price pressure. The report incorrectly assumes an infinite depth for agricultural cash markets. In reality, elevator cash prices are sometimes high because there is no available grain.
Factors omitted. The report ignored the fact that Canadian farmers can only access the U.S. premium market after incurring transportation costs that disadvantage them relative to U.S. farmers. The use of regional average prices for Montana limits the authors’ ability to adjust prices to reflect local market conditions (e.g. North Dakota or Montana), thereby ignoring U.S. farmers’ geographic advantage proximate to Minneapolis-area mills and additional Seaway costs for Canadian movement to eastern export positions. It also fails to note that U.S. protectionist trade action has made access challenging and resulted in Canadian farmers’ exclusion from the U.S. wheat market from 2003 to 2006.
CWB benchmarking. The authors imply that the CWB discontinued the Gray benchmarking process because it would show poor performance. This is incorrect and ignores the fact that a comprehensive benchmarking process has continued to improve CWB transparency and accountability to farmers. Performance benchmarks have been included in CWB annual reports and "Reports to Producers" since 2004.
Timing of sales. The concluding section of the report implies that the authors view timing of sales as the predominant way that CWB sales should be evaluated, ignoring other strengths of the single-desk system."
THese are could easily be interpreted as fraudulent mis-statements... if a securities commission were to analyse this... if there were CWB shares...