The Debate Gets Personal

I have received a copy of a “letter to the editor” signed by Ian Robson from Deleau, MB.  It is a direct response to, and criticism of, my commentaries, and a personal attack on me.  His letter is an excellent example of how the guardians of the CWB – those that argue aggressively against any negative comments about the CWB, even those substantiated with facts – use rhetoric, fear and even personal attacks to change the channel or divert attention away from the real issues.

His letter follows my comments.

First, I make no apologies for my comments or my position.  I am a fierce proponent of all things efficient; all my views are through the lens of efficiency and the benefits it brings to the whole market and value chain – farmers, grain companies, processors, and ultimately the consumer.  Unlike Mr. Robson and others, I believe there is more wealth to be created through greater efficiency and that farmers and grain companies can both be more prosperous.  I don’t believe that when one gains the other loses; Mr. Robson appears to believe (as do other guardians of the single desk) that if grain companies are making more money it must be coming out of the farmer’s pockets.

Whereas I welcome the debate, I am disappointed in the lack of substance brought forward by Mr. Robson.  Rather than attack me as a “CWB slagger”, it would have be more beneficial for all involved if Mr. Robson provided clear evidence of his support for the single desk and the CWB.  Even though he argues that my arguments are hard for him to understand, he doesn’t counter with anything factual to substantiate his argument or to discredit my facts and conclusions.

Mr. Robson’s approach assumes I am working to put an end to the CWB.  Since I have never taken that position, even on this he can provide no evidence.  I see how the CWB is not providing the net benefit that the farming community deserves and it needs to be changed or improved.  To me, that means the possible end of the single desk.  If to Mr. Robson the end of the single desk means the end of the CWB, then he should make that clear.

I apparently have failed at explaining the weaknesses I see in the single desk.  Let me try one more time:

1. The single desk is responsible for export feed barley prices NOT being translated to the domestic market.This means that the local price of barley to the local feed lot or feed mill stays lower than it would otherwise.  Farmers end up selling barley locally for a lot less than they would otherwise.  This costs farmers a lot of money.  If the CWB used a system to translate the price better (better price transparency) then all farmers would get higher prices, and grain companies would make no more than they do now handling CWB barley.
2. The single desk (and pooling) is responsible for a low initial payment and poor movement which, combined, has created financial hardships on durum producers.  Because of the lack of cash flow, many durum farmers sold high quality durum into the local feed market.  Now the CWB is scrambling for high quality durum for offshore sales; one vessel has been in Vancouver since Sept 19^th and is still waiting for durum.  The demurrage bill will be in the millions and will be paid for by farmers.  If the CWB provided better upfront pricing and more flexible delivery options, this would not have happened.
3. Price comparisons show the pool returns are consistently below THE LOWEST daily prices over a crop year that the US farmer can sell at. Even if the US farmer sells at the lowest price he sees all year, he still gets more than Western Canadian farmers.

If Mr. Robson and his colleagues cannot see that these represent hundreds of millions in losses by the single desk to him and his neighbours, then I’m afraid I am not equipped to convince him otherwise.

But I will repeat – when it comes to CWB board candidates, give your full consideration to those candidates that are willing to look critically at all the CWB is doing.  It must work for farmers to be sustainable.  And that means judge on more than rhetoric; consider those candidates that are willing to make hard decisions.  

But most of all, ask any incumbent who stands to protect the single desk, what they’ve been doing for the last four years.  They’ve got a lot to answer for.

Mr. Robson's letter:

Dear Editor

For some time now private market commentators have slagged the CWB.  These attacks alternate between the paid for puppet farm organizations like the Wheat or Barley Growers and the direct Trade paid market commentators.

Commentator Mr. John De Pape, as a former Cargill employee and a tireless promoter of margin trading activities is one of these CWB slaggers.  His reports are laden with meaningless jargon designed to make him sound like an academic criticizing the Canadian Wheat Board.  This rings more than a little hollow when you realize that the CWB returns more than 95% of market revenue back to us as the benefiting farmers.  The demise of the CWB would allow Mr. De Pape and his private trade friends to profit from more margin trading at the expense of farmers.

How reliable have Mr. De Pape’s comments been?  In 2003 he said barley exports had dwindled to “insignificance.”  In the same report he also complained it is “short-sighted” for the CWB to charge a premium price to U.S. and Canadian malsters.  This is a magical way of saying farmers should take less for their grain, presumably by allowing Mr. De Pape and his friends in the private trade to claim their margin instead.  

This is typical of Mr. De Pape’s short sighted thinking.  Fast forward to 2010, what do we see?  The high Canadian dollar has taken the bloom off the cattle market, the Russians just stopped all grain exports, malting and feed barley sales are booming.  Lucky we still have the Wheat Board to negotiate the best deals in all the market conditions.  It is a good thing that nobody took Mr. De Pape too seriously back then, unless of course you count our failed ostrich farmer Federal Agriculture Minister and a few oil barony Alberta ranchers.  

Is there a connection to this flood of self-serving trade commentary and this years’ CWB Farmer Director Elections?  Yes there is a connection.  Please vote for Farmer CWB Directors that fully support the CWB.

Ian L Robson
Deleau, Manitoba

The CWB Director Election is Important

The CWB directors’ elections are upon us.  The ballots have been mailed out.  It is now prudent to review where candidates stand and the track record of incumbents.

There are three incumbents running for re-election.  Henry Vos (District 1), Allen Oberg (District 5) and Kyle Korneychuk (District 7).

Vos is known to support positive change.  According to his election material, his vision for the CWB is “A Canadian Wheat Board where farmers have the freedom to operate and manage their businesses with relatively few restrictions.”  It also states “During his past term as a director, Henry has worked constructively for change to increase the value of wheat and barley to farmers.”

Oberg is an unwavering advocate of the single desk.  In his profile, he states “I am convinced that the single desk is fundamental to a strong and viable CWB.”

Korneychuk is also a staunch guardian of the single desk.  He states “I firmly believe that the CWB with a single desk mandate provides the largest benefits to all producers”.

The following is what occurred at the CWB during their term – since 2006:

Administration costs since 2006:

·         CWB overhead costs have risen by about $9 million (13%).

·         HR costs have risen by about $6 million (16%).  

·         Communications expense has risen by about half a million (30%). 

The Single Desk performance since 2006:

·         Premiums the CWB may have achieved were overwhelmed by other factors that kept returns at or below annual market averages.

o   Wheat pool averaged about $30.00/tonne below annual market averages.

o   Durum pool returns averaged about $7.00/tonne above annual market averages. 

o   The malt barley pool returns averaged about $50.00/tonne below annual market averages.

·         Delivery into the durum and malt barley pools was restricted.

o   08-09:  81% acceptance on durum (in a market offering well-above average prices). 

o   09-10:  52% acceptance on durum

o   08-09:  malt barley pool was closed to new selections half way through the year.

·         In 07-08, the CWB lost $226 million in discretionary trading in the pools (mainly wheat).

·         Most years, the CWB held back from the market the true value of the export market, thereby having a seriously negative impact on domestic feed barley values.  About $50/tonne in 07-08, $8.00/tonne in 08-09, unknown in 09-10, and $50.00/tonne in 10-11 (currently).

Producer Pricing Options and the Contingency Fund since 2006:

·         The CWB lost a total of $94 million in the PPOs (06-07 to 08-09; 09-10 information is not available yet).   

·         The Contingency Fund was drawn down by about $41 million. It went from a $44 million positive balance in 2006, down to a $29 million deficit in 2007-08, and back up to a $3 million positive balance in 2008-09.

·         In 08-09, the PPOs “earned” $25.00/tonne, one of the largest amounts taken from participants ever, as the CWB tried to cover the losses in the Contingency Fund.  The Early Payment Option “earned” $15.00/tonne, by far the largest amount taken from participants ever in the life of the EPO program, also to cover the deficit in the Contingency Fund.

Evidence suggests that the single desk has not generated any net benefit to farmers and has been responsible for a serious drain on the Western Canadian economy over the last four years.  

All candidates need to stand up for what they believe.  Incumbents have the added accountability of what they did while on the board to improve the CWB for farmers.  Those that are unwavering proponents of the single desk such as Korneychuk and Oberg and other new candidates need to explain why they think it is beneficial to farmers in the face of overwhelming evidence to the contrary.

These candidates have indicated they support the status quo (protecting the single desk):

District 1:             Dan Gauthier

District 3:             Lynn Jacobson, Brett Meinert and Stewart Wells

District 5:             Allen Oberg

District 7:             Kyle Korneychuk

District 9:             Garry Draper and John Sandborn

All these candidates should be asked what evidence they have that the single desk is a benefit.

From what I can gather, these candidates support change (even if it means changes to the single desk):

District 1:             Henry Vos

District 3:             Brian Otto

District 5:             Vicki Dutton

District 7:             Terry Youswa

District 9:             Ernie Sirski

All these candidates should be asked what they would do to change the CWB for farmers’ benefit.

All farmers need to take this election seriously.  I’ve heard about farmers that don’t care about the elections or don’t agree with them so they don’t bother to participate.  (Some even toss their ballots out into the garbage can in the post office.  Don’t!  There is talk that ballots have been taken out of the garbage and submitted by unscrupulous characters - you may not agree with their choice!)

Even if you don’t grow CWB grains, you are impacted by decisions and actions of the CWB and its board of directors. 

Even if you don’t believe in voting for CWB directors, your vote is important.

If you qualify, vote.

Candidate Profiles

It's all about listening and responding

Did you know?

For at least the last 12 years the CWB has surveyed farmers on a variety of issues, from attitudes about agriculture to preferred marketing systems.

The proportion of farmers who were surveyed over the years who support the status quo (single desk) on barley ranged from 22% to 36%.

The CWB has done nothing.

In January of 2007, CWB officials met with Minister Gerry Ritz in Ottawa.  In attendance were senior officials from the malting companies and the President of the Malting Industry Association of Canada.  These representatives explained that the malting industry would not invest any more capital in the malt industry in Canada as long as the CWB has single desk marketing authority.  They were demanding changes.

The CWB did nothing.

The Canadian malt industry kept to its word and has not invested in any new capacity.  However, since that time, China has built a great deal of capacity and continues to import Canadian malt barley and has now increased exports of malt dramatically.  (From practically zero in 2004 to an estimated 375,000 tonnes in 2010.)

We have effectively exported our malting industry to China.

In March of 2007, the Federal Government held a non-binding plebiscite on barley marketing.  Farmers voted and only 38% supported the status quo.

CWB Chairman Ken Ritter said:

“The results of the barley plebiscite announced today are not overly surprising. The CWB has been surveying farmers every year for the past 10 years and these results appear to be consistent with our annual findings.”

The CWB has known farmers’ views on the single desk for over ten years, and they have done nothing.  They know the impact the single desk is having on the barley value added industry, and they've done nothing.

Earlier this year, the CWB hired a consultant to study the malt barley industry.  The consultant apparently told the CWB:

o   The Pool and CashPlus need to offer producers better price signals.

o   The Pool and CashPlus need to offer malt companies improved delivery liquidity.

As far as I know, the CWB has done nothing with this study.  

The CWB operates on behalf and for the benefit of farmers.  Democratically, the majority of farmers have told the CWB over and over they don’t want the single desk on barley; and the malt industry has told it in different ways what needs to be done to improve the malt industry (which also would benefit farmers).  However, rather than act on any of this, the CWB does nothing but continue to argue adamantly that one of the options presented, the dual market, will not work. (I believe it can.)

This is all about listening and responding.  Farmers know what is best for themselves.  They need directors sitting at the CWB board table who won’t override farmers’ interests with their own ideology.  

http://www.cwb.ca/public/en/newsroom/releases/2007/032807.jsp

(I will send copies of the recent CWB surveys if anyone asks.  Drop me a line at cwb@depape.ca .)

Is this the deal you want?

Durum should be the Jewel in the Crown of the CWB.  We produce consistent high quality; we grow more durum that any other single country in the world; and we are the largest exporter in the world with about 50% market share.  Yet the durum market in Western Canada is in utter shambles right now.

Using real rough numbers because everyone’s experience is a bit different, I estimate it takes about $140 an acre to produce a crop of durum.  A typical yield might be 40 bushels/acre.  The CWB organizes deliveries into the grain handling system through a “contract call” system.  Most farmers sign up 100% of their production for acceptance into the grain handling system, but the CWB decides how much you get to deliver and when.

Last year’s (09-10) durum producers saw the following: 

·         Initial payment was roughly $3.50/bu in Alberta and Saskatchewan

·         First Contract Call (Series A) was for 25% of contracted tonnage (this means you could deliver 25% of the amount you contracted with the CWB)

·         Second call of Series A (Dec 17) was for 15% (for a total of 40% of your crop by this point)

·         There likely won’t be a final payment, so the Initial is all there is.

Using a typical yield of 40 bu/acre, this means that prior to Christmas, durum farmers could only deliver 16 bu/acre and receive the equivalent of about $56/acre.  With cost of production around $140/acre, the typical durum farmer was about $84/acre short against his durum expenses.  That’s more than a $13,000 deficit on a quarter section.

The next Contract Call (in Series B) was on April 20 for 20%.  Since only 40% was taken in Series A, the balance is rolled into Series B and included in this call – the net effect is that this call is for 12% of the original contract. This allowed delivery of 4.8 bu/acre and netted about $18/acre.  Total payment at this point was about $74/acre.

And that was it: the CWB accepted only 52% of the crop.  This means the typical durum producer received a total of about $74/acre for a crop that cost him $140 to produce.  Durum farmers were left with a deficit of about $66/acre, or about $10,500 per quarter of durum.

This year’s (10-11) Initial Payment is about $1.74/bu to farmers in Alberta or Saskatchewan.  So far, the CWB has called for 50% of what has been offered.  Assuming the same yield of 40/bu acre, this means that all a durum producer can sell is the equivalent of 20 bu/acre and receive about $35/acre.

Assuming the same cost of production as before, this year’s durum farmers have a deficit of $105/acre, or about $17,000 per quarter section.

If you grew the same acreage and same yield of durum in both of the last two years, on a quarter section, you have:

·         produced a total of 12,800 bushels

·         sold 6,500 bushels

·         stored 6,300 bushels

·         paid production costs of $44,800

·         received from the CWB  $17,200

·         a hole in your bank account to the tune of $27,600

On a full section the hole is much bigger - $110,400.

Right now the CWB is looking for #1 and #2 Durum and it appears that they are having trouble getting it.  The fact of the matter is that many, many durum producers have sold their high quality durum into the domestic feed market to generate cash.  And now it seems the CWB could struggle to cover sales because they were counting on the durum that was stored on farms.

One more thing.  The street price for durum right now in Montana is $8.60/bu.  In Canadian dollars that’s roughly $8.77/bu.  And the US durum farmer can sell his whole crop right now.  At 40bu/acre, that’s $344/acre, or $55,000 per quarter.  Not only can he pay his bills, he can put some money in the bank.  And before you suggest that the US support programs have anything to do with this price – they don’t.  The loan levels are so far below this price that they will never kick in.

If the CWB system is so good, and we’re so dominant in the global durum market, why can’t Canadian durum farmers even cover their cost of production with revenue from growing durum while American producers can (and even earn a tidy profit as well)? 

Is this the deal you want?

http://www.cwb.ca/public/en/farmers/payments/

http://www.cwb.ca/public/en/farmers/contract/popups/09-10/calls/cwad0910.jsp

http://www.cwb.ca/public/en/farmers/contract/popups/10-11/calls/cwad1011.jsp

The CWB Misses the Point on Feed Barley Debate

Late last week, the CWB commented on the feed barley debate.  (http://www.cwb.ca/public/en/hot/record/commentary/)  Unfortunately, they still don't get it.

The CWB explained its feed barley program back in 2007-08 by saying it sold several hundred thousand tonnes purchased directly from the trade.  This is quite different than buying from farmers using Guaranteed Delivery Contracts (GDCs), as they are doing this year – but in most respects, the result is the same.

On these trades it has been estimated that the CWB made about $50.00/tonne.  To explain why it didn’t distribute this excess profit to producers, the CWB said: “It would have been extremely difficult to determine which farmers contributed to those cash sales and at what prices, which is why the margins were directed to the CWB's contingency fund…”

I have to ask:  Why did the CWB choose to buy from the trade and not from farmers?

First, if they bought directly from farmers using GDCs, they could have distributed the excess profits to the farmers that participated in the sales. 

Second, using this program, the CWB created the same major problem in 07-08 that we’re seeing right now.  In both years, the CWB’s actions are directly responsible for keeping the export values from having a positive impact on the domestic price of feed barley.  Since The CWB made $50/tonne in excess profits on these export sales, it’s only natural that, with efficient price transparency as there would be in an open market, the domestic prices would have moved higher to compete.  At 1½ tonnes/acre, that works out to $12,000 per quarter that you could’ve had. 

And it doesn’t stop at feed barley.  If you made more from selling feed barley, you’d have less cash-flow pressure to sell canola.  Less selling pressure on the canola market means higher prices on canola.

A majority of The CWB board of directors feel farmers are better off with the CWB single desk.  They argue that grain companies “would (naturally) buy feed barley at prices just above the domestic value, sell it at the higher international values, and retain the profit margin.”

This argument is based on what would happen if you suddenly changed the rules, shut down the single desk one day and opened up the market the next.  It’s based on the assumption of the current dysfunctional market structure – ineffective price discovery, no appropriate hedging tools, few players and no active arbitrage between markets.  The CWB fails to factor in competition and arbitrage between markets.

I argue that the market would evolve very quickly from its current makeup.   We would see the rapid development of vibrant futures and options markets, active cash brokerage/trading, multiple participants (not just the big grain companies) and effective arbitrage between markets.  Competition would drive handling margins lower, just as we’ve seen in other non-CWB commodities. 

Ironically, I see the CWB playing an important role in a dual market, particularly in the early stages, in price discovery, discipline and arbitrage.

The crucial point the CWB is missing is that the rest of the barley market suffers by the way the CWB operates.  And the CWB is completely myopic when it says that if there was an open market, farmers would lose.

They don’t get it.  Doing it the CWB way, everyone loses.

More on Expenses

The CWB has taken note of some of my comments about the increase in administration costs since the board of directors was installed.  Their response can be found on the CWB website at http://www.cwb.ca/public/en/hot/record/commentary/.   I appreciate the CWB engaging in this discussion as it’s important for farmers to know how their money is being spent.  

The CWB response, entitled “Change costs less than doing nothing”, supposedly written by Bill Nicholson, elected-director of District 9, is a fair description of increased spending but without the detail that you’d expect from an organization that says it is open and accountable to farmers.  It includes a high level description of what the money was spent on, but with the notable omission of any financial details.

For example, Mr. Nicholson did not explain to my satisfaction why the human resource expense on a per-employee basis doubled since the board took over.  He suggests that the employment "benefits" are costing more, but I find going from $47,000 per employee to $95,000 per employee a bit extreme.  That one needs more explanation.

(Maybe it’s none of my business, but I’m left wondering why Bill Nicholson is the author on this rebuttal.  The last time they responded to something someone said that they didn’t like it was by Larry Hill, who was Chairman at the time.  Just a thought, but if it’s inappropriate for Allan Oberg, the current Chairman, to respond because he’s in the middle of running for re-election, how appropriate is it for Bill Nicholson?)

Mr. Nicholson mentions the growth in advertising spending is to communicate to farmers about new programs.  But that explanation doesn’t explain the months-long WTO-fighting campaign around the slogan “Is this the deal you want?”  I don’t know the extent of the campaign but I know it included full page ads in the Western Producer (check page 17 of the May 20 edition), some smaller ads, internet banner ads on various sites, a dedicated internet domain (www.isthisthedealyouwant.com), as well as dedicated pages on the CWB website (http://www.cwb.ca/public/en/hot/trade/deal/) where you can send an email postcard to the Minister of Agriculture through an automated internet system.  This all costs money too.

This campaign didn’t promote a farm program or service.  In my view, it was aimed at lobbying the federal government in an effort to protect the single desk, something expressly prohibited by a federal order-in-council. 

I know a lot of farmers wonder how much is spent on promoting the CWB itself (or deflecting criticism) as opposed to communicating farmer programs.  I’d like to see that split, too.

And $114 million on computer systems and even more in consulting to operate them?  Although they defend this spending, neither the Annual Reports nor Mr. Nicholson is clear on how much has actually been spent.  And there’s no word on how much more needs to be spent.  Any way you slice it, that’s a whole lot of money. 

(I wonder if the CWB ever thought of outsourcing some of the core activities of the CWB, not just the computer services.  There are things the CWB does that duplicate what the grain companies are already doing it, particularly in transportation.  If the CWB partnered with these companies, and had the companies perform certain logistical efforts, not only could the CWB save money and overhead, it may not need a big expensive computer system.)

Just thinking outside the bin.

I find it ironic that the CWB sees my earlier comments as an attack.  The CWB shouldn’t bristle at what was just a simple presentation of facts.  I encourage the CWB to address issues that may arise from time to time and provide even greater detail and clarity next time.   But during the directors’ elections, I would prefer to hear incumbent director-candidates defend their record.  I’d like to know what they think.

The US Market, Part 2

I’m being told my price comparisons (CWB pool returns to US average prices) aren’t fair.  Two issues were mentioned:

-          “the market doesn’t sell all year round.  Usually, the market is lowest when the most tons have been sold.”

-          “…you do not have the average price that was actually received by the American farmer who sold on the open market.”

The CWB uses what they call the Wheat Pool Pricing Model which establishes the pricing pace for the pool.  (Page 45, 20070-08 Annual Report).  If they can’t sell (and price) grain to keep to the pace, they sell futures.  If they’re selling more than the pace allows, they buy futures.  They don’t say explicitly that they’re shooting for the crop year average, but I doubt the approach would take them far off it.

From the September 23 commentary for the 2010-11 PRO:

At the time of this PRO, the CWB has priced approximately 24% of the expected 2010-11 crop year deliveries of wheat.  A pricing level of 60% is anticipated by the end of January."

24% priced at 15% through the crop year;  60% priced 50% through the crop year.  Are they skewing pricings early in the crop year?  Is that what you would do this year?  Just asking.

Based on the pricing model and that they say they get premiums, it would be reasonable to expect better than average pricing from the CWB.

The other comment said I hadn’t considered what the US farmer had sold for.  That’s right; why should I care what the US farmer does when I’m not arguing to get rid of the CWB.  I look at US prices to get an idea what the average market price is – not because without the CWB you could sell into the US and not because without the CWB, that’s what you could expect.  We compete with the US in offshore markets – why do they get more on average?  I figure you deserve better than average from the CWB and it doesn’t matter how you spin it, you ain’t getting’ it.

Forget about averages for a minute.  I would like someone to explain why the pool return isn’t just below average; it’s often below the lowest market price (DTN) for the year.  Take a look at this chart.  Practically every year the Final Pool Return (the blue line) is below – or well below the lowest DTN price (the red line).  Most years, the US farmer could sell it all at the lowest price of the year and he’d still be getting better prices than you.

 

To those who think I’m trying to dismantle the CWB – I’m not.  I’m trying to help you make more money.  If you can figure out how to do that with the CWB, so be it.  But the way I look at it, if you want to keep the CWB, you better start looking at it more critically, instead of just accepting it as gospel. 

CWB Annual Reports

DTN Index Prices 

CWB Elections: Those That Can Vote, Should Vote

There are farmers saying they won’t vote in the CWB elections because they don’t grow CWB crops.  They say that they really don’t care what the CWB does or doesn’t do because it doesn’t have anything to do with them. 

Well, it does.

Delivery of CWB grains is restricted by the CWB “calling” grain into the system – you’d like to deliver more but you can’t.  As most farm bills come due in the fall, farmers need to sell grain to pay the bills.  Since they can’t deliver enough CWB grains to pay the bills, they sell something else.

A friend once joked that he grew peas so that he could pay his durum production bills in the fall.  It’d be funny if it wasn’t true.  Between the low Initial Payment and 50% contract calls, there just isn’t the cash flow needed to cover the input costs. So peas or canola or some other crop carries the burden.

Canola is the big one – the big non-CWB crop that gets sold at harvest or shortly after to pay the bills.  The problem is that too much canola gets pushed into the system in the fall.  As canola stocks build in the primary elevator system to more than a million tonnes in most years, the basis can weaken by as much as $30/tonne (or more) – we’ve all seen it.  This is not elevator companies taking advantage of you because they know you need to sell - grain handlers use price to get farmers to slow down on deliveries and – at the same time – to get buyers to buy more (or attract price sensitive buyers, like Mexico).  Once the stocks in the elevators begin to get cleared up, the basis works its way back up to as much as even money to futures, as buyers look for prices that will now attract new deliveries into the system.

Feed barley is another big one.  I’ve already talked a few times about the current export feed barley program that is costing all feed barley producers – even those that don’t sell to the CWB – millions.

The CWB’s passive system of “inventory management” makes the whole system – for all crops – dysfunctional.  Whether they are manipulated, managed or free, markets provide signals and incentives to both buyers and sellers.  In western Canada, since they get the same price regardless of when they deliver, farmers have the incentive to deliver wheat early in the crop year (instead of holding it for later delivery); yet they can’t deliver any more than the CWB allows.  On the other hand, the canola market gives incentives (signals) to sell for delivery later in the year; yet many can’t as they need the cash now, not later.

When the CWB states it doesn’t distort markets, it’s wrong.  Among others, it distorts the markets for all the non-CWB crops grown in western Canada.  And it’s not to the benefit of the farmer.

Don’t think for a minute that because you don’t sell to the CWB that it doesn’t concern you.  It does.  If you’re a grain farmer, and even if you don’t sell grain to the CWB, your vote in the director’s election is important.

More Price Comparisons

My last commentary was about how the CWB’s final pool return was much lower than the average “market” price for the year.  It created a bit of a stir and discussion so I want to add to it.

I used the CWB’s daily selling price as a reflection of the market price – it’s the price they quote to domestic millers.  Someone suggested that price wasn’t actually the “market” price – I should use a US price, suggesting that the price I was using was just the CWB’s asking price. He said that the CWB could be selling below the “asking price”.

DTN collects cash prices from over 300 elevators in the Northern Plains if the USA (mostly North Dakota and Montana) each and every day, then publishes the average.  Most consider this to be a very good representation of the market.  Comparing the pool return to the annual average of the DTN prices and the 08-09 pool return showed the pool return was $37.18/tonne below the average DTN price.  Although this is better than the $55.55/tonne below the average Canadian offering prices, the pool return is still substantially below average for the year.

Now, for the benefit of you doubting-Thomases, this was not a one-year event.  Over the seven years ending in 08-09, the final pool return was, on average $32.23/tonne below the DTN average.  The worst performance was in 07-08 when the pool was $63.21/tonne below the US average; the best was in 04-05 when it was $11.36/tonne below the US average.

I asked it before.  I’ll ask it again:  Are below average prices good enough? 

Pro-CWB director’s candidates explain their support of the CWB - because it’s a “marketing advantage” (Stewart Wells),  “the CWB has clout” (Allen Oberg), or “it provides the best opportunity for farmers to maximize their returns” (Kyle Korneychuck).  How do these comments fit with these price comparisons?

I would sincerely like to see the CWB explain this.  Remember, the CWB says in its Annual Report that it achieved average premiums in wheat over the competition of about $7/tonne.  How can you get premiums when the final pool returns are consistently so poor relative to the North American market?  Is there something else in the pool calculation that isn’t apparent?