Did you know....we aren't doing anything like this in Canada?

BARLEY Australia has introduced a new "food barley" classification for varieties that fail the malting category but are better than stockfeed.

It comes just a week after the barley industry organisation announced, much earlier than expected, that the popular hindmarsh variety had failed commercial malting tests.

The decision would have meant hindmarsh was downgraded to a feed barley, although buyers were willing to export it as malt to some markets.

Hindmarsh had shown potential as a variety suitable for the shochu market in Japan.

Barley Australia executive manager Neil Barker said the new "food barley" grade would enable hindmarsh and other future varieties with unique food processing or biochemical characteristics to be recognised independently of current malt and feed barley classifications.

"The food classification will create opportunities for both growers and marketers to cater for these special markets," Mr Barker said.

Grain industry figures have been arguing for some time for a food or general purpose category for good varieties that fell into the gap between malting and feed categories.

Wimmera Grain Co. director and Rupanyup farmer David Matthews said there was a need for a food grade for those varieties that failed malting testing for technical reasons but still had other benefits to warrant them being paid more than the feed grain price.

Last week, the differential between the malting and feed grades was a massive $64 a tonne.

[By the way, in Canada, based on the PROs, the malt premium is only $21/tonne.  ...De Pape]

Many growers had their hopes pinned on hindmarsh barley, which had the highest uptake of any new variety in the barley industry.

GrainCorp and Viterra were offering premiums above the feed price for hindmarsh barley.

Mr Matthews said hindmarsh was an "outstanding" variety agronomically.

"Describing hindmarsh as feed did not reflect the reality of a diverse international marketplace," he said.

"Farmers and the grain trade know that many thousands of tonnes of hindmarsh will be exported for malting purposes.

"Classifying this variety as 'feed' immediately undervalues its potential use and sends the wrong signal to the market."

Mr Matthews said describing hindmarsh as "food grade" as GrainCorp did, sent a much stronger signal to customers and allowed marketers to negotiate a discount from a malt barley price.

"It is better to offer a discount to the malt price rather than a premium to a feed grade price," he said.

"The starting point should be the malt price, rather than the feed price."

Mr Matthews said that having a grade in between the feed and malt categories and, as a consequence, a discounted malt price would make a significant difference to the returns.

Plant breeder David Moody said the key characteristics the brewing industry wanted from varieties were higher processing speed and high alcohol yield.

Mr Moody, who bred hindmarsh and now worked for Intergrain, in Western Australia, said enzymes could be used to overcome these problems if, as in the case of hindmarsh, a variety failed to meet accepted levels of either characteristic.

He said many Chinese brewers readily used enzymes but premium brewers from around the world did not.

Mr Moody said the food barley classification might help varieties, such as hindmarsh, extract a better price.

But he said if there was an abundance of malting barley in the world, overseas buyers would probably opt for the better varieties and those that fell into a food grade would probably end up as feed.

There are opportunities out there to market barley into niche markets based on unique characteristics.  The CWB needs to either change the way it looks at these markets or allow others to run with it.  You know....lead, follow, or get out of the way.

When it comes to the CWB, why is the media so unbalanced?

For some time now I have felt the media hasn’t given CWB issues an even break.  Too often it appeared that reporters didn’t understand the issues or didn’t know all the facts – or worse, had a bias that they couldn’t contain.  The CWB is very good at getting its message out and the media seems to pick up on it, ignore other ideas, and report with a bias toward the CWB’s perspective.

The Western Barley Growers Association and the Western Canadian Wheat Growers Association often challenge the CWB in press releases but far too often, their positions or analysis don't get balanced coverage in print.  This concerns me; the media’s job is to report what is happening, and if there are two sides to an argument, the media’s responsibility is to give readers the opportunity to see both sides – give both sides equal air time.  But that just doesn’t happen when it comes to the CWB.

With this year’s CWB election approaching I thought I could contribute by providing facts that are often overlooked.  Via email I started to distribute daily commentaries and analyses using mostly the CWB’s own figures, asking only that my comments be forwarded to as many people as possible.  I made sure that the media – the farm press in particular – received these commentaries.    I indicated to the media that if they wanted to do a story around anything I had written, I would be happy to discuss with them the information, sources and analysis – in the interest of getting a balanced story.

The Western Producer

Last week, I asked Barb Glen, editor at the Western Producer about their coverage of the CWB election.  She acknowledged they “really hadn’t done a very good job of it”.  When I asked about my blog she replied that she had been reading my articles daily.  She added that my blog had shown her and others at the Western Producer that “there’s a lot more to the CWB than the single desk issue.”  That was refreshing and disappointing at the same time.

Unfortunately, this new appreciation for the various current CWB issues by the Producer never emerged in its election coverage.

The Manitoba Co-operator

A couple of weeks ago I got a call from Allan Dawson, a reporter with The Manitoba Co-operator.  We got into a lengthy discussion about the election and the question of honesty and integrity among the five candidates that have not declared their position on the future of the single desk.  It was clear that Allan felt that the five candidates in question were being dishonest.

I told Allan that he was missing something; I suggested there’s much more about this election than the future of the single desk.  Allan’s disagreement and singular, undying focus on this one issue showed his bias.  Much like the candidates that say the single desk must be protected, to Allan Dawson, the future of the single desk is the only issue.

I asked Allan if he had looked at any of my commentaries.  He said he had only scanned them; even so, he felt it was “all the same old stuff” that the Wheat Growers have been pushing for years.  If Allan had chosen to actually read these pieces with an open and enquiring mind, he would have seen that the analysis and the specific issues were all new – and relevant.

When I explained much of it has never been presented before, and certainly not in this form, he just said there was too much – “it’s overwhelming”.

I find this fascinating; he only “scanned” what I wrote – over 30 different articles clearly identifying many shortcomings of the CWB – and he dismissed them all, but picked up two quotes buried in a couple where I give my opinion on the single desk position of these five candidates.  I guess he found what he was looking for; and the other material didn’t interest him.

It was clear his mind was made up.  He would not consider any of my analysis - or any other input - as worthy of his ink.  His article, "Some mum on single desk versus open market" confirmed this.  As a colleague said, “That’s typical for Allan – editorials masquerading as news”. 

 

Dawson allowed his pro-CWB bias to get in the way of an important story.  To him, the story is how candidates misled farmers by not declaring a position on the single desk.  He indicates they are all well known to be supporters of a voluntary CWB and by not declaring this in their platform they are being less than honest.

I suggested to him that none of the other eight candidates have commented about the questions of marketing performance by the single desk.  They all have a position that the single desk is fundamental to the power of the CWB yet, not one has ventured a comment, solution or even a disagreement concerning the current, serious problems related to the single desk.  Now really – who’s being disingenuous?  When someone says your business model isn’t working and asks what you plan to do about it, the least you can do is answer.

To me, the real story is this: if the “open market supporters” aren’t talking about taking away the single desk (as Dawson seems to have expected them to), don’t we want to know why?  What has their attention so strongly that “marketing choice” is not even on their radar? 

    

News reporters go by the W5 rule of reporting.  Let’s test it on Dawson's story:

Who?                   CWB candidates

What?                  Didn’t declare their position on the single desk

When?                 Now

Where?                Western Canada

Why?                   According to Allan Dawson, because they’re dishonest.  

Dawson failed the W5 test in this article.  He came up with his "Why?" answer even when faced with other potential answers.  I asked him what he thought had grabbed the attention off these candidates; what is so important that they have chosen to put the future of the single desk to a lower priority?  It must be something important.  But even faced with many substantial reasons, Dawson wouldn’t even go down that path.

Dawson and others in the media, supposedly reporting news stories, too often show their bias.  This is a real disservice to Western Canadian farmers who deserve a balanced conversation on the issues with full disclosure from both sides.  

But they're not getting it from the media, particularly from the Manitoba Co-operator and the Western Producer.  Pity.

What’s it going to take for Status Quo "supporters" to see what’s going on?

• In 2001-02 the CWB transferred $7.1 million in interest revenue from the feed barley pool into the Contingency Fund. 

o   It now has a policy that allows it to arbitrarily transfer whatever amount of the feed barley interest revenue it believes it should so that interest revenue doesn’t distort the feed barley price.

o   The drivers here are (1) what the Contingency Fund needs and (2) what the CWB believes is the “right” price for farmers selling feed barley.  In any other world, this would be considered manipulation.

o   CWB staff has told me that the interest revenue isn’t being taken out of the feed barley pool; rather, they say it goes directly into the Contingency Fund.  This is convenient for them because this way it doesn’t look like the CWB is taking from feed barley producers and artificially setting the feed barley price.  BUT – check out the annual reports; in 2007-08, there was $948,000 in interest revenue reported in Pool A and $1.236 million transferred out to the Contingency Fund.

o   http://www.cwb.ca/public/en/about/investor/annual/archive/

• In 2002-03, domestic maltsters in Alberta imported malt barley from Denmark because of price signal failure by the CWB.

o   This is from Bob Sutton, President of Rahr Malting in Alix Alberta:

The CWB was overly cautious about increasing the PRO while feed barley prices rose sharply due to the drought, leading farmers to avoid CWB pool contracts for malt barley. The malt industry first took the drastic step of guaranteeing the PRO to inspire some confidence in the price.  Meantime, we needed to make sure we had low protein barley and the EU hadn’t figured out yet how bad our crop was, so we made the purchase and when the news hit that Canada’s crop was so bad that we were importing from the EU, prices jumped.

o   The CWB argued that the quality of the barley crop that year didn’t meet malt specifications, forcing the maltsters to import.  Ask the maltsters and farmers in the area – the quality was there, but the CWB malt PRO wasn’t competitive to domestic feed prices.

o   At 891,000 tonnes, it was the smallest malt barley pool in recent memory.

o   With proper price signals, there would be no imports and malt prices to farmers would have been higher

o   Estimated cost: $40/tonne on about a million tonnes = $40 million lost revenue for farmers

o   Worth considering – the quality of the crop this year is about as bad as it’s ever been, yet no one is importing barley from offshore.

o   http://www.cwb.ca/public/en/about/investor/annual/archive/

• In 2007-08, the CWB lost about $90 million in the PPOs due to inappropriate hedging and $226 million in the wheat pool account due to “discretionary trading” (speculating)

o   It’s likely the CWB used the same “hedging” strategy in the pool account as in the PPOs and so it’s equally likely that the CWB took similar losses in the pool account (on top of the “discretionary trading losses”) – but there is no way to find out.

o   Estimated cost to producers:  in excess of $300 million

o   http://www.cwb.ca/public/en/about/investor/annual/archive/

• In 2009-10 and 2010-11, the durum market at the farm level was in total disarray

o   CWB accepted only 52% of the 09-10 crop

o   Poor deliveries combined with low Initial Payments, farmers began selling high quality durum into the domestic feed market

o   Vessels on demurrage because the CWB couldn’t get the durum

o   Cost to farmers:  many millions

o   http://www.cwb.ca/public/en/about/investor/annual/archive/

• In 2010-11, the CWB initiated a feed barley export program that hid much of the export value from farmers

o   A more fluid program providing good price signals back to the prairies would have increased domestic barley prices

o   Estimated cost to farmers: in the hundreds of millions.

o   http://www.cwb.ca/public/en/farmers/contracts/cashplus/gpbarley/

• Over the years there has been higher handling costs for regulated CWB crops

o   In 2008-09, Western Canadian average “net-backs” (handling, cleaning, CWB expenses, etc - excluding freight):
 CWRS = 28.91
Durum = 48.47
Canola = 5.65
(The reason canola is lower – competition and no CWB costs.)

o   Even a $20/ tonne difference is worth about $400 million annually

o   http://www.quorumcorp.net/current_report.html

• Every year, non-CWB crops are sold in the fall to pay for input costs, including those for CWB crops.

o   It has been estimated that canola farmers receive in excess of $60 million LESS annually due to this excess selling pressure.  Include all non-CWB crops, and the cost to farmers is closer to $100 million annually.

o   Add to that the cost of additional on farm storage required for CWB crops that can’t be delivered, and the cost is even higher.

• CWB pool prices net to farmers are consistently below crop year average farmgate prices in the US northern plains

o   Considering the last 7 years, the pool returns on spring wheat and durum have consistently been below the US average street price.

o   Applied to the whole pool, this totals over $3 billion in revenue below what average US prices would have provided.

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

o   http://www.mgex.com/history/historical_new.cfm

All these “situations” occurred under the status quo with the single desk.  However, not one director candidate that is running on protecting the single desk has addressed any of these – or any other unfavourable situations that the single desk is responsible for.  Instead, they argue about what they believe will happen if the single desk is lost; curiously, they never talk about how problems like these will be avoided.

There are candidates that are running on platforms that are focused on changing the way the CWB does business.  They recognize that there are problems with the CWB that are costing farmers a great deal and are willing to address them.

Considering these “situations” listed above, which candidates make more sense?  The ones that want to correct these costly episodes, or the ones that are turning a blind eye to them and perhaps even believe that nothing is wrong?  Once they're at the board table, which ones will work at improving these situations?

Market Signals vs Market Power

A few years ago, CWB Chairman Ken Ritter embraced Al Capone’s approach to getting his way when, speaking to an Alberta Wild Rose Convention, he paraphrased Capone by saying: “You may get what you want with a smile, but you can get it a lot quicker with a gun and a smile.”

More recently, Maureen Fitzhenry, spokesperson for the CWB, seems to have considered a similar approach.  In an article in the Western Producer this week discussing problems with durum this year including slow farmer delivery, Ms. Fitzhenry said “...we’ve tried different programs but ultimately, we can’t put a gun to anybody’s head.”

Nor should they, even metaphorically.

The market relies on incentives to change or affect behaviour, for one very simple reason.  Incentives work.  And I’m not talking about the gun to the head type.  

The CWB fails to translate market signals to farmers.  It prefers the bureaucratic approach of trying to control everything through edict.  But it can’t control everything (nor should it).  And regardless, the CWB is still sending signals, although often they are counterproductive.

For instance, the CWB lost control of a lot of high quality durum this past summer and fall because the domestic feed market was paying $4.50/bu when the CWB wasn’t accepting any deliveries and later, when it did, the Initial Payment was only $1.70/bu.  Also, you could sell all you wanted at $4.50 whereas with the CWB you are told how much you can sell – and it ain’t much.  Although not what the CWB is trying to say, the market message received is “we don’t need your durum right now – if you need to sell and another buyer is willing to pay more, that’s a better option right now”.

The CWB can try to persuade farmers to deliver through an increased PRO or talk of increased Initial Payments, but ultimately cash is king.  The CWB came out with a Guaranteed Delivery Contract (GDC) on durum but it was a case of too little too late for some farmers.

This can get really ugly when, because of cash flow needs, farmers sell more canola or peas or oats or whatever – than the market really needs at the time.  So far this year (up to the week ending Nov 12, or put another way, a period covering 28% of the crop year), farmers have delivered 19% of the wheat crop and 40% of the canola crop.  Canola inventories in the system have been increasing and now sit in excess of 1.5 million tonnes.

Price is the dominant factor used by the market to entice more demand (through lower price) and more supply (through higher price).   At the farm level, in an open market, higher prices are used to attract deliveries (increase supply) into the system and lower prices to slow deliveries (decrease supply). 

The CWB sets a fixed price on delivery and uses a much more passive system to get deliveries – they just open up the contract calls and hope the grain will flow.  The problem is it fails to recognize that farmers still respond to price and delivery opportunities.

Compare recent FPC prices and canola prices (in Alberta). 

• The FPC for #1CWRS 13.5 yesterday was $7.06/bu, Since the FPC appears to be the best deal right now, let’s go with that as the best option for wheat right now.

•  On FPC’s the CWB will make an incremental payment for deliveries later in the crop year, supposedly reflecting the time value of money. According to the CWB website, if you lock in today’s FPC and don’t deliver until April, you will be paid an additional 1.8 cents/bu, for a total of $7.078/bu.

Now let’s look at canola.  Bunge in Ft. Saskatchewan posted these prices yesterday:

• Spot delivery     $11.44/bu

• April delivery     $12.06/bu

• By selling today for April delivery, you'll get paid an additional $0.62/bu over today’s spot price.

The signals are clear – they’re telling farmers to deliver wheat right now as there’s no benefit to holding it, and to sell canola for deferred delivery, because there is a substantial incentive to store it.

But because of poor cash flow with CWB grains, many farmers are forced to ignore the market signals and sell canola, disrupting (distorting) the canola market.  Even at increasingly lower prices, canola deliveries continue out of necessity.

So when it comes to the CWB and its impact on Western Canadian farmers, you can run, but you can't hide.  You may think you're going around the CWB, but you're not really.

The CWB has an impact on all Western Canadian farmers.  No one's holding a gun to your head, but all Western Canadian farmers need to vote in the CWB director elections.

CGC Grain Statistics Weekly
The Western Producer
Bunge, Fort Saskatchewan
CWB FPC Price Schedule

More misrepresentations

It’s late in the CWB director election and the rhetoric has kicked up a notch.

There are eight candidates running campaigns around what they believe is the importance of the single desk.  They all argue how important the CWB is to farmers as an advocate.  The common strategy seems to say if the CWB loses the single desk, farmers will lose the collective power of the CWB on these non-marketing issues.

There are five other candidates running on platforms for change at the CWB, addressing marketing problems, including net returns to farmers and escalating cost issues.  These five are apparently running on correcting or improving the CWB and its programs, addressing current problems.

Farmers have basically two choices; they can either vote for a candidate that is looking at solving current, real problems or they can vote for a candidate running a “what if” campaign, as in “what if” we lose the single desk.

The “what if” candidates seem to be itching for a fight over the future of the single desk but there’s nobody there to take the other side of the argument.  And now the media has stepped in and taken up the cause for the “what if” group.  There have been a number of recent articles on how there are no candidates running to remove the single desk.

Unfortunately, the media seems to have bought into this notion that the election is all about the single desk.  Never before has so much material about the current workings and activities of the CWB been provided to the media during an election (yes, from me).  Yet during the whole election period (so far) the media has failed to pick up on any of it.  (With the exception of this week’s Producer where there will be an article about my blog – but still not about the content.)

It is really disappointing that the media have made a story of the candidates who have not declared their position on the single desk, yet have failed to talk about how the “what if “candidates won’t talk about current problems with the CWB.  Isn't there a story in that?

Here’s the real story:  there are five candidates out there that are saying, “Let’s not worry or argue about the future of the single desk right now – there are far too many other burning issues that should be dealt with right now”.   They have changed the channel – past CWB elections have been about the single desk, but in this one, these candidates that are working at being more relevant.  And yet some are trying to say they're not being honest.  Give me a break!

CWB Alliance 

A new group has added its voice to the election debates - the Canadian Wheat Board Alliance.  Its main offering is a website describing what they believe will happen if we lose the CWB or the single desk.  It is totally aligned with the "what if" crowd.  Nowhere does it address current issues facing farmers right now nor does it come up with any solutions.

And much of what they say is misleading– or just plain wrong.

It’s really unfortunate – even though they present some interesting material, it’s impossible to have any credibility because there is so much wrong or misleading material alongside it.

I could counter all the issues in detail to correct the Alliance.  But to me, that’s not the story.  The real story is the remarkable extent to which they will go to convince farmers that making any changes to the CWB is a huge risk.  It is equally remarkable that they refuse to address current issues that need attention.

 

The Alliance and the “what if” candidates should be answering the question “What if the CWB and the single desk remains?”  We all know the CWB's not going anywhere, so these candidates should be saying what they are going to do to improve the CWB.

Let’s recap some of the current issues:

• Durum: poor movement, poor pricing

• Feed barley:  poor price signals, lack of arbitrage with the domestic market (domestic market held down)

• Feed wheat: lack of price signals

• Expenses appear to be out of control   

• High system costs 

• No evidence of premiums

• No fresh ideas

Ironically, a vote for the status quo means nothing will change, leading more and more farmers to revolt against the CWB – including some that might surprise you. 

The "what if" candidates want to fight over the future of the single desk, but they don't address current marketing issues.  Remember, the single desk is THE marketing instrument of the CWB.  It would make sense to argue for the single desk on the basis of marketing performance and related issues yet this group avoids that at every opportunity.  Saying the single desk gets farmers the best returns without proof is not acceptable.

Either the CWB Alliance and the “what if” candidates don’t understand the core marketing issues or they think there are no CWB problems facing farmers, which means they are out of touch.  Or, they do understand the issues but are intentionally avoiding them. 

I’m sure it’s hard to make farmers fearful of losing the single desk when so many are talking about the marketing problems facing the CWB right now – problems that involve the single desk.  

But the Alliance is still going to try.