May 28C WB debunks myth that it extracts premium

[TOM4CWB]

On May 28th the CWB left no doubt that the single desk extracts no premium for "designated area" grain producers in the North American domestic Market!!!!!!

I Quote the CWB news release;

"The pricing of wheat and barley to Canadian processors is based on the North American market, ensuring all processors in Canada are on an equal footing with their American counterparts. In other words, Canadian processors pay the same value as they would if the CWB did not exist. At the same time, Canadian processors receive many advantages such as a guaranteed supply, pricing and hedging flexibility and professional and technical expertise through the CWB."

The bottom line is the value added processors get many advantages from the CWB, and pay nothing for the services the CWB provides, instead "designated area" grain farmers pay for these services!!!

To be fair to the value added industry, the unstable climate created by the CWB monopoly, never knowing what a certain sales policy will be tomorrow, or if the CWB will even sell to them, is a major hurdle to deal with every day of the year!!!

Bottom line, the CWB is spending millions to educate "designated area" grain producers that it is neither straight, honest or truthful about why it exists and for what reason.

To the CWB, thanks for staightning this out for us, now can you stop wasteing pooling account money on trying to convince me I am a fool, and can't read yet?

[TOM4CWB]

The Canadian Wheat Board recently submitted a report to the International Trade Commission by two American economists, entitled, "Anatomy of the Global Wheat Market, and the Role of the Canadian Wheat Board".

This report provides a number of insights into how the CWB operates.

The following quotes are taken from the report:

"General trends in wheat pricing throughout the world are driven overwhelmingly by changes in the global supply and demand balance of wheat."

"Apart from the relative participation of wheat exporting countries in the global market, it is important to recognize that three of the major exporting nations -- Canada, Australia, and Argentina -- are not among the largest wheat producing countries by any means. In many years China, in addition to being the world's largest producer of wheat, has also been its largest importing destination. The European Union is the second most significant producer, ranking a close second behind China. India ranks third and the United States fourth. Russia is also a major wheat producer, and if the former Soviet Union is consolidated as a single entity, it moves up to second or third place. The existence and behavior of non-exporting wheat producing countries cannot be ignored in assessing the conditions of competition in the global market..."

"Wheat prices around the world are established through negotiated sales between commercial suppliers, including both private grain merchants and STEs [State Trading Enterprises such as the CWB], and buyers. Many times, such prices are linked to spot prices on grain exchanges, such as the MGE [Minneapolis Grain Exchange], simply because these organizations efficiently assimilate and reflect information bearing on market fundamentals such as crop production levels, weather, and so on."

"As in any essentially competitive market, as a general proposition, price trends are determined by the broad balance of supply and demand... Although prices may be negotiated individually, buyers have no reason to agree to pay more than the "market" price…"

"If the CWB or Cargill attempt to increase the price of durum to mills in country A, thereby increasing the cost of semolina and pasta production within the country, customers simply import more semolina or pasta at world prices."



Please explain to me where the CWB Monopoly power can extract a premium, when the above market realities exist?

Why shouldn’t grain farmers just use farmer owned grain companies to market their grain, and allow competition to work to benefit these western Canadian grain producers?

In times of drought, wouldn’t this competition for our grain bring us the highest price?

At what price is the CWB selling our grain for today, and for what reasons?

Isn’t the CWB just an extra redundant level of administration just costing us more to sell our wheat and barley if all other factors remained equal?

Even with the recent CWB feed barley PRO adjustment, why is the CWB projecting to still sell feed barley $20/t below market value into our premium barley export markets?

[AdamSmith]

Hi TOM4;

I havn't been on Agri-ville since before seeding. I never like hearing about poor crop conditions but the ugly truth is that your drought misery is my salvation, so to speak. The crops here in the SW of MB look good. It's been quite warm for the last 2-3 weeks but we've had numerous rain events totaling close to 3 in. My winter wheat is getting close to harvesting and most of the canola planted during the first two weeks of May is finished flowering.

About the CWB and they're admission that the monopoly really doesn't generate a premium price for farmers. Farmers all accross this land should be asking themselves WHY DOES IT CONTINUE TO EXIST AT ALL?

For years we've been told it was because it gives us a market edge on the rest of the world. Acedemic studies have been arranged to promote this fanciful notion. The CWB spin doctors and their stooges at the NFU and other sympithetic farm organizations have routinely villified any and all critics of the great and wonderful monopoly CWB.

But now when the @%#*'s about to hit the fan at the ITC the whole story changes. Why they're just like any other marketer with no special abilities or special powers. What an amazing turn of events.

Well it's true they have no special ability to extract premiums but they do have a special ability to sell under the prevailing market price and they do have a special ability to force all grain farmers in the DA into dealing with them and they do have a special ability to force the Grain Co.s and the RR's into dealing with them.

The CWB covets this power for no greater reason than the puruit and the exercise of power itself. It goes no deeper than that.

So to answer one of your questions TOM4, yes the CWB is just an extra redundancy that farmers can clearly go without.

But sadly the CWB will continue to tell their captive DA farmer audience that the CWB gives them power and the CWB generates them a premium for their wheat. The sympathetic prairie farm press will never question the CWB's inconcistant claims about premiums and power. They will just remain blindly loyal to the CWB and most farmers will never hear anything other than what the CWB wants them to hear.

[TOM4CWB]

AdamSmith,

I don't know if the CWB is just redundant administration, but I do know one thing!

If the CWB does not get out of the policy of trying to brainwash us that they are indispensible, wasteing our own money to try to influence us, then the people who do not need or want CWB services are right to be offended.

When the Law is that I need a drivers license, I hope the government would not spend millions telling me how good this regulation is and how it is going to save me.

If I have a drivers license, then when the Police stop me, I am legal.

If I don't have one when the Ploice stop me I will be breaking the law and pay the appropriate fine or jail sentence for breaking the law!!!

It is obvious the government and the CWB are in a real moral dilema, and know they are wrong, otherwise they would not need to brainwash us!

Their actions would be their promotion!!!

It is obvious this mixed corporation CWB trial is backfiring, as the CWB cannot act like an ordinary corporation, when it is not.

Therefore normal corporate methods of dealing with clients, customers cannot be used.

If I am offended with Canada Post, Microsoft, or Air Canada, I can take my business elsewhere, and these are considered "monopolies"!!!

If I am offended with the CWB I can go no other place, but JAIL!!!

[TOM4CWB]

AdamSmith,

The CWB Canadian quality issue is brought up many times as "cherry picking" by DA grain producers who want to export to the US market.

My experence has been that the highest cost buy-backs year after year are on the lowest quality Canada Feed Wheat and CPS.

What has your experence been on winter wheat?

What I do not get is why the buy-back pays DA grain producers to export #1CWRS 13.5, which the supposed CWB quality development "premium" should be the highest on!!!

This makes no logical sense!!!

How can the CWB claim they extract a premium on feed wheat when year after year they pay the lowest price for it, and dump it on the international market only because it was so bad in quality, that no-one else would take it in the domestic market!!!

Is this the way a "super marketer" with all the power in the world extracts premiums?

[melvill]

TOM and ADAM, I'm going to throw a little fire on the pro- and anti-CWB debate. I'll probably get burned but what the heck . . . . . .

When I was the Market Specialist up in the Peace, one elevator manager up there kept track of the pricing on all of the canola that was delivered to his facility in each year of a two-year period. He kept track of whether it had been forward priced or hedged or delivered on a basis contract or sold on the cash market. The result was that in each of the years, a little over 60% of the canola delivered to that facility was priced in the bottom third of the price range for the year. (Incidently, US research on wheat and corn pricing shows a number very similar result to that.)

Those Peace results, while not at all scientific, tell me that the marketing skill level of a big chunk of prairie producers has lots of room for improvement. Also extrapolating from that, imagine how the net incomes of those Peace canola growers would have improved if that 60% had been priced in the middle third of the price range for each year. Again extrapolating, imagine how the incomes of a majority of wheat (and maybe malt barley growers) would decline if those markets were moved to an open market system.

Now I can hear loud protestations (and maybe even cuss words) from some readers of this thread! I have no doubt that there are a number of wheat (and maybe malt barley) producers who's incomes would benefit from those grains moving to an open market system. Those are very skilled and astute marketers and, I'm certain, the Board system does hold them back.

My perspective is more from an industry basis rather than from an individual farm basis. My perspective comes from 15 years of teaching market risk management to farmers and I strongly believe that farmers MUST become very astute marketers. Farmers are usually very skilled at production. They like to produce, that's why they farm. But many, many are not particularly skilled at marketing and market risk management (and there aren't enough Market Specialists in Alberta to make huge changes in skill levels in less than a lifetime). Those unskilled marketers would most certainly suffer if they had to rely on their own marketing skills for wheat, durum and malt barley.

There's my fuel on the fire . . . . . . . . Easy on me boys. I have to small children to support <grin>.

Lee

[TOM4CWB]

Lee,

Funny you should bring this up!

In Sask.numerous pulse growers pool and average sell their pulse crops.

I pool and sell my forage seed through an seed dealer.

The Agricore bean growers pool and sell beans along side other bean marketers from the trade.

I pool and sell canola on my own farm, with my crop share landlords!

Every one of these pooling situations can happen without a single desk monopoly.

And if any ag producer doesn't agree with the management of the people responsible for making the sales, they can leave that seller, got to another marketer, or do the marketing work themselves.

Now in a free and democratic society, isn't this the respectful way to do business?

If I respect and honour my neighbour, isn't this the minimum moral base we must work from?

Why must we complain about freely made decisions, and always look over our shoulder to see if someone else got more than we did?

If it was a fair deal for both buyer, and seller when it was made, wasn't it a fair deal?

In every case, couldn't the price have possibly gone lower instead of higher!

Don't we get higher prices, because selling at lower prices increases demand, therefore allowing prices to go higher later in the season, which is the rationing mechanism which sends the supply to the highest bidder, because there is not much product left to be bought up?

Did anyone threaten to jail anyone of these Canola farmers, because they felt the need to hold out and sell at the higher price later in the marketing year?

Maybe these farmers who sold for a higher price, needed that higher price, and that is why they did not sell at the lower price?

Maybe many of the farmers who sold at the lower Canola prices were still making a fair profit, and that is why they sold?

Now Lee, which system would a civilized democratic country use, and which would a dictatorial communistic country use?

Which kind of country are we supposed to be living in?

Can't we give some credit to farmers that good transparent market signals will produce a vibrant Ag economy that produces what is needed rather than what someone thinks we might need?

Do you really think that all the respect farmers deserve is to be;

FREE TO DO WHAT THEY ARE TOLD TO DO?

[melvill]

Good morning (TOM)

I knew my comments would get a response. I'm waiting for the rest to land on me . . . . remember I have two small children to support (grin).

This is a public forum and I've probably already said too much because, in my job, I'm much more effective with clients if my advice is both perceived and seen to be anti- or pro-CWB neutral. I try really hard to maintain that stance.

TOM, you're right that pooling, in some form, is an effective tool because it spreads risk much like, in Charlie's words, a mutual fund. However, participants still must trust those running the pool. Believe it or not, I run into people who will not pool special crops because they don't trust the people running the pool. To a certain extent, that makes sense because pools operated within a private company are never audited by the participants.

On the other hand, in an over-simplified sense, pooling gets all the participants the average price for the year. Critics suggest that they could consistently get better than the average price for the year given the opportunity. Based on my Peace region results, those getting better than the average price for the year would be limited to astute marketers.

[TOM4CWB]

Lee,

I think the real stinker here is that no one can prove to me that the CWB doesn't sell 80% of our wheat and barley in the bottom 30% of the market!

Many comparisons with US wheat marketing would show the CWB doesn't even do this good!!!

I think it is absurd that when I do need to sell my wheat into the top priced markets, through the buy-back process, instead of encouraging me to make a profitable sale the CWB wants to steal money from me instead!!!!!

I cannot believe that farmers are so untrusting that they would not trust Agricore or UGG to set up a pool to sell their grain!

How do staff or management personally gain by ripping off grain farmers pools, other than a bad reputation?

Won't that just mean that people won't do business with them any more?

How could a personal gain occur in a co-operative grain company anyway?


Pooling myself is really simple, just sell a portion of my grain every month of the year!!!

No Admin costs,

Complete freedom!!

Any farmer should be able to get an average price IF THAT IS WHAT THEY Really WANT!!!

Isn't this the reason why grain companies don't offer a pool now for canola, because no-one wants this pricing option?

Dosen't a minimum price contract make much much more sense!!!!!

[crusher]

I'm with Tom on his latest comments in his rebuttal to Lee. On average I expect to market about 40% of my production through the CWB. Its one thing to get a handle on world supply and demand, stocks use ratios, global harvesting etc. I'm at a fairly reasonable comfort level figuring out my canola marketings vs. my cost. I can look at basis levels of the different companies and the underlying futures to get an accurate price. But compare that to the CWB pricing and delivery system where I have to figure out administration fees, estimated PRO's against actual payments, timing of interim payments, permit book shuffling, basis levels, delivery opportunites etc. I get a little nervous in trying to forcast my final net returns. I've taken out some Fixed price contracts but I still won't know what I am going to receive until they announce the initials and price spreads, by then I'll be locked in.

You both have mentioned that farmers have presold canola for fall at possibly lower than ideal prices. Perhaps if one could presell some wheat he wouldn't be so hard pressed to sell canola to create the necessary cash flow. If we could then that might change some of the dynamics for canola pricing.

In our area there used to be a significant amount of CPS grown, partly because it yielded well and partly because it used to move early. Lately the yields of HRS have been closing in on CPS, but also the delivery patterns have been hard to predict. Lets get a little more clarity from the CWB please.

[ianben]

Hi All
I had promised myself I would try to keep out of this CWB debate but I feel Lee has a point.
Farmers by their nature are never ALL going to be astute marketers. I would guess that 60% figure is about right here too.
What affect do these marketers have on the markets?
Are they the guys who are willing to agree to low prices because they do not do their homework?
If there are more of these guys in the market will prices go even lower?
Not everyone is willing or capable of being trained to Tom's standard but having spent the money training him surely he should be free to operate.

Lee the other 60% need more specific advice and we all would benifit.
A guide price for each region based on your marketing experience
Something for us to aim for.
This about a fair price on the day is passing the buck.
Buyers are far better informed than us and take advantage of small surpluses driving prices down by saying they can buy cheaper elsewhere.
Thats why I am here.To find if you can produce canola at $5/bu
Canada I find cannot produce canola at $5/bu, but you blame Brazil for your low prices, they blame the US, round and round we go ever lower.

We need someone to do some proper market research for FARMERS and publish the results in terms we can relate to.

GIVE THAT 60% THE CONFIDENCE TO HOLD FOR A REAL FAIR PRICE.

Like the realtor in a land deal

Why are commodities different?
Do ultra low prices increase demand and reduce prodution?
I thought we had prooved that myth already.

Regards Ian

[TOM4CWB]

Ian,

I think you forget that lower prices do lower production!!!

Look at Canola!!!

The government of Canada said the average price of Canola was supposed to be $233/t for the 2001-02 crop year.

Crop Insurance was half the coverage on Canola of what we could get on CWRS wheat!!!

In a dry year, with everybody saying low prices with no chance of increases, no wonder why acerage fell!!!

We seeded a small crop, because of low prices, and guess what????

Now you in England will benefit!!!!!!

Don't tell me the system of supply demand doesn't work!!

This is the way it must work for the market to remain in balance, right?

[ianben]

Hi Tom
From what I have read here the weather has more to do with what you/we grow than price.

How much of that lower canola planting was due to germination fears?
My crops are totally different to what I planned due to wet fall here.

As usual we farm first and market later.

Without a perception of unfavourable weather there would have been NO market rally due to your reduced plantings.

Thats the way I see it anyway.
We must let weather govern our production.
Why does it have to control markets also?

Regards Ian

[TOM4CWB]

Ian,

There is some truth to what you are saying.

We swithched some acres to barley, abandoning Canola and spraying it out.

This was a straight risk management decision, as all canola was late, as germination couldn't happen without rain, was a higher risk than reseeding with barley!

Further we wanted some barley to take as feed if there was no rain and a reck did happen, to feed our livestock.

These decisions were all weather related, but also were price related because canola had still not got over $300/t.

It appeared to me that a good price for barley was about to occur, at less cost and more profit per acre than canola.

So I helped the Canola market by ripping my crop up and reseeding!!!

We wish we could all have good weather all the time, but this is not reality and so life must go on!

We have had close to 2" in the last 3 days, the crop that is here will now have enough moisture to mature!!!

I count myself blessed to have the opportunity to take the combine out and harvest a crop this year,as some of my fellow farmer freinds will not be so fortunate, only 200 miles away!!!

[ianben]

Hi Tom
Canadians planted fewer canola acres yes, a lot more than they said they would in March, and that summer fallow acreage almost disappeared.
That had little effect on prices though!!
Our buyers know us too well. They do their market research.
I bet those acres which seem a lot to you and me represent 0 point something of total oilseed production.
Where as a weather event which effects EVERY acre, may only result in a 15% yeild loss to you and me has a much greater effect.
Yes we will all be better off with lower yeilds and higher prices. 34x7$is better than 40x5$.
That is my whole argument.
Why can't we with some help from market researchers/advisors/realtors find out how many bu to sell next year to keep the price at $7.
I bet it would be 38/39 bu
If we all get 40bu next year the price will be back to $5 because we all MUST sell that extra bu.

WHY????

Explained in terms we can relate to I believe most farmers would hold that extra bu even the 60% Mel says market poorly.