Thursday, December 23, 2010

The "benefits" of pooling and the Single Desk are wasted on feed barley

Did you know....
When the 2009-10 CWB final payments were announced, feed barley wasn’t mentioned in the official release by the CWB.  You had to look at the full payment document and go right to the end of the 12 pages to find this statement:

NOTE: Feed Barley Pool A and Pool B received no deliveries so are not shown above.

This is historic.  This is the first year ever that the CWB received absolutely no deliveries to the feed barley pools.  Zero.  Zip. Zilch. Nada. Nuttin’. 

And yet, in its “end of year” presentation, the CWB reported feed barley sales of 99,000 tonnes to Saudi Arabia and 133,000 tonnes to Japan in 09-10.  A review of all CWB Bulletins from 09-10 shows no reference at all to any feed barley programs such as a Guaranteed Delivery Contract (GDC) or Guaranteed Price Contract (GPC).  It’ll be interesting to read in the Annual Report how the CWB secured these supplies – and from whom (could have been bought directly from the trade).  I wonder if they made any money for the Contingency Fund.

It’s no wonder no one sold into the pools with the Initial Payment for Pool B at $92 instore ($33/tonne in SK, or $0.72/bu).  (I can’t find any reference on the CWB website to the Initial Payment for Pool A; it’s as if it never happened, which I guess is true.  I will assume it was similar to the Initial for Pool B.)

If farmers aren’t taking advantage of pooling, I guess the other pillars – the government guarantee and the single desk – are pretty much of little value to them as well.

Now look at this year.

The CWB is reporting a Feed Barley PRO, so there must be a pool available.  But the only way to sell into it is through a GDC or GPC, depending on the CWB’s choice of the day. 

On December 15th, Sask Ag reported the domestic feed barley price was $144.04/tonne ($3.14/bu) basis instore Saskatoon.  At the same time, the CWB Pool A PRO was $161.68/tonne ($3.52/bu) and the Pool B PRO was $154.68/tonne ($3.37/bu).  Also, there are GDCs reported on the CWB website for a “Net Expected Value” of $212 instore Vancouver; this works back to SK at about $153/tonne ($3.33/bu).

So if you can find them, there are some CWB contracts out there for feed barley at better prices than domestic.  And, although it’s not saying it now, the CWB had said all profits from these sales would go to farmers.  Now that they are going through the pool, I guess the “profits” will show up there.

The critical question is, what value is the single desk in all this?

When the CWB sells offshore, it must be competitive.  The big market – Saudi Arabia – won’t pay a premium for Canadian origin simply because someone said they had to.  If its price is as little as $0.50 over a competing offer from Australia, Saudi camels will be munching on Aussie barley.

The domestic price is moving higher due to various factors – higher competing commodities such as imported corn and DDGs, tight barley balance sheets and the prospect of the potential of export movement at better prices.  However, the export market is muted by the way the CWB is contracting out each sale to selected companies and not making it public or liquid.

I maintain that an open market would provide timely market responsive price signals that everyone would respond to – exporters, domestic buyers and farmers alike.  And it would encourage competition, which would drive costs out of the system.  The current CWB system does not allow that to happen, and it comes with its own inherent costs – all at a huge expense to barley farmers.

Those that think multiple sellers in an open market will push the price lower - think about why the CWB is so cautious when it sells feed barley – it buys the barley first (at large discounts to the potential sale value) because it’s concerned that it may not be able to buy in what it sold.  Why would a grain company sell below a publicly reported market price when they would know they couldn’t buy it in cheaper?  Why doesn’t it happen now in domestic barley?  Multiple buyer and multiple sellers – it’s called competition, and it’s a good thing.

And to those that think grain companies will sell at the premium offshore prices and just buy at the much lower domestic prices (keeping the higher prices hidden), think about this.  The only reason there is a large gap between domestic and export prices right now is because of the CWB system.  Get it out of the way and multiple sellers and multiple buyers will arbitrage the markets together.

Get the single desk out of the way and let the market work for the benefit of barley farmers. 

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