Tuesday, October 26, 2010

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?


  1. And what happened to the 25% the cwb did not call from the 08 crop?

    In reality the cwb only called 35% of the 09 crop.

    Now run your numbers, and add in storage and conditioning charges.

  2. Everything you said is true but you missed one important factor that they stuck us with almost 20% of our production from 08 when the final price was over $8/bu. Which in our situation cost us about $75,000. I think the demerage charges should come out of CWB employees wages because they could have easily called for more durum on the B series last year and avoided these problems.

  3. then factor in those who "won the grainflo lottery " and or got in on a strongfield gdc the previous year and consider their cash flow compared to mine ... and that they compete for the same rental property i do ...ouch ... not impressed, my business is definitely left at at a disadvantage