Intuitively, the concept of the single desk makes sense. Farmers should benefit from collectively negotiating from a position of strength and the potential for better prices seems almost obvious. But the evidence doesn’t match with the expectations. In fact, analysis of most available evidence tells a substantially different story.
The Guardians of the single desk argue that the CWB gets “premiums”. For example, for wheat in 08-09 the CWB reported a “net per-tonne price spread realized by the CWB compared to competitors’ values of $6.65/tonne”. I’m pretty sure this means that on the whole pool, the CWB got on average $6.65/tonne more than what the competition would have sold (premium) on the same day.
I’m not going to argue against this because I have no evidence to say it’s wrong. But I have doubts because of how competitive the industry is; even the CWB says it needs to be price competitive. If buyers are paying more for Western Canadian wheat it may be for better quality, something for which the single desk cannot take credit – but that’s another story.
The CWB is like a hired resource to market grain on behalf of farmers. To me, the true test of this arrangement is not whether it got a better price on the day it sold; rather, it should be measured on how it did compared to what prices were available over the crop year. Does it really matter if it got $10/tonne more than everyone else on the day it sold if it sold the whole crop at the bottom of the market?
It should be pretty straight forward to get average prices over the year - just sell equal amounts throughout the year. You don’t even need a single desk to do that. If you’re going to pay someone to market your grain for you, you should expect greater than average returns over the crop year. If your hired marketer doesn’t get at least average prices, you might be inclined to replace him or simply do it yourself.
So I compared average market prices to the CWB final pool return for a standard grade of spring wheat. As a representative of the market price, I used the CWB’s own selling quotation it uses to sell wheat into the domestic milling market. These prices are meant to reflect US competitive prices so they really reflect the whole North American market. Since the pool return has some direct costs and revenues that aren’t factored into the selling price at the time of the sale, I adjusted the selling quotes accordingly to make sure there was nothing that would skew the results; apples to apples.
For 08-09, the final pool return for #1CWRS 13.5 was $311.36/tonne.
The adjusted average market price for #1 CWRS 13.5 was $366.91/tonne.
The average CWB sales price for #1 CWRS 13.5 was $55.55/tonne below the average market price for the crop year.
If we accept that the CWB achieved average premiums of $6.65 over the competition on the day of the sale, then we can see that without that premium, the average CWB sales would have been $62.20/tonne below the average market price for the year.
This analysis doesn’t refute the CWB’s claim of premium prices. But it’s pretty tough to argue that the CWB gets any kind of premiums on sales when the pool return is so much lower than the average market price for the year.
How can that happen? There must be an explanation; and farmers deserve one.
Stay tuned.
You can take the average price for the year and come up with a number but if you don't relate that to tons actually sold per month your comparison is not accurate. You can make it sound like you have uncovered some ground breaking discovery but the reality is that the market doesn't sell evenly all year round. Usually, the market is lowest when the most tons have been sold. That's not always the case. But, unless you account for this you have proven nothing. You compare the price the cwb paid farmers, but you do not have the average price that was actually recieved by the american farmer who might have sold on the open market.
ReplyDeleteWhy wouldn't it be accurate? The CWB claims to sell a little bit of wheat all of the time so as to capture an average price. What this comparison shows is that someone who follows that exact same strategy in an open market will out price the CWB.
ReplyDeleteMaking adjustments for tonnage sold would therefore make the comparison inaccurate.
Can all farmers sell what they produce evenly year round? Just about always something is in the way of this.(loan payments, input bills, unexpected events, weather) And even if they were able to, they probably wouldn't, although I do not want to speak for everone. I truthfully have never met anyone who sells canola this way. Why would it be any different in wheat? The arguement being put forward is describing a scenario which would probably not happen very much in an open market in western canada.
ReplyDeleteThe american farmers sell thier wheat in an open market. That is what we would be doing without the CWB. Compare actual american farmgate prices recieved on wheat to our CWB pool return. It would be the most realistic fair comparison. Money recieved to money recieved, apples to apples.
I've never understood why we need a single desk if it continually nets us a below average price.
ReplyDeleteLets see 500 acres of spring wheat at 50 bushels per acre equals 25,000 bushels or 680 tonnes. Divide that by 12 month's and its 56.6 tonnes per month. If a farmer wanted to sell this amount every month he certainly could and that would get him an average price.
ReplyDeleteHow many actually do this? I don't know.
But I do know this, at the end of the day it's not about capturing an average price or about capturing the best price. It's about selling at a price that makes you a profit. Is the price above or below your break even number. The wheat board pooling system doesn't give a rip about whether or not you make money.
And when I compare the CWB pricing options to what a US farmer can get at their local elevators they've got many more opportunities to sell their wheat for a profit and for more of a profit than I do.
And don't forget, you can price grain without delivering it. You can price a set amount each week and deliver say, four times a year.
ReplyDelete