Top ten reasons the CWB plebiscite will prove nothing

10. Ballots have been sent to deceased people.  The problem starts with permit books as the basis of the CWB voters list.  At times, permit books of deceased people are kept open until all accounts are settled.  I doubt there is an efficient means of vetting these out of the voting process, so they still go out. 

       I know an open market supporter who received a ballot for his deceased father.  Since he won’t be voting at all, you can be certain he won’t be voting for his father.  On the other hand, a single desk supporter, anxious to show support for the single desk, will more than likely submit a vote on his deceased father’s behalf as well as his own.

9.    Some people get multiple ballots.  I heard one story of a couple who farm 1,000 acres received a total of 6 ballots.  For the same reason as above, single desk supporters will vote with every ballot they can, and open marketers that don’t see the point, won’t vote with any ballot, regardless of how many they received.

8.    Some don’t get a ballot at all.  MNP says producers that didn’t get a ballot can get one by:

Securing confirmation from the 2011 CWB Plebiscite Coordinator that they made deliveries of wheat or barley to the CWB in 2006-07, 2007-08 or 2008-09, but did not have an active 2009-10 or 2010-11 permit book, or

Completing an “Application to Vote in the 2011 CWB Producer Plebiscite”.  Producers must provide support to confirm their eligibility, such as:

·         a statutory declaration witnessed by either a Commissioner for Oaths or a Notary Public, or

·         a copy of a grain delivery receipt or a cash purchase ticket from a licensed elevator or grain dealer that provides evidence of production in the 2006-07, 2007-08, 2008-09, 2009-10 or 2010-11 crop years. 

Single desk supporters deliver to the CWB and likely received a ballot.  If you haven’t been delivering to the CWB, you probably don’t support it and would need to apply for a ballot.  But those that don’t support the CWB aren’t likely to go to all this trouble just for a ballot in a meaningless plebiscite.  This leads to more single deskers voting than open marketers.

7.    Many open market producers are not going to vote at all.  Mostly because it is meaningless and will not accomplish anything.  This again means single desk supporters are more likely to vote than open marketers.

6.    Some producers have said they will be sending their ballots to Ag Minister Ritz or Prime Minister Harper.  Again, you can be sure that these won’t be single desk supporters. 

5.    The question doesn’t consider a voluntary CWB.  It’s clear to anybody not in a coma that the government is planning an open market and is willing to support a “voluntary CWB”.  To its credit, the CWB is now exploring options for a “voluntary CWB”.  On top of that, the CWB’s own producer surveys show the majority of farmers prefer the “voluntary CWB” option (dual market). 

But the “voluntary CWB” option is conspicuous by its absence on the ballot.  The CWB has failed to ask the question that will allow farmers to show support of their preferred market structure.  It’s like Tim Horton’s asking if you prefer tea or milk, then proclaiming that, based on its survey, most people prefer tea. (“Well, I drink coffee, but if that’s the question, I guess I’ll say tea.”)  Just imagine what would happen if it then dropped coffee and sold only tea!

4.    A vote on barley?  Really?!  The CWB producer survey shows the majority of farmers reject the single desk on barley – by a wide margin.  Allen Oberg says the CWB board will respect the results of the plebiscite; I just wonder why, when they haven’t respected the results of more than ten years of surveys.

3.    The CWB message is misleading.  Consider this statement from the CWB website:

“Producers will hold their own plebiscite on the future of the CWB...”

The plebiscite is not on the future of the CWB. Saying so creates the false impression that it’s important to participate if you support the CWB.

2.    Only wheat producers vote on wheat and only barley produces vote on barley.  This disenfranchises all those producers who stopped growing wheat (or barley) because they don’t support the CWB.  The CWB’s impact is felt by all producers, regardless of what they grow – CWB or non-CWB.  If you’re going to give farmers a vote, all producers deserve a vote. 

1.    This is a vote on personal property.  If you support the idea of the mandatory single desk you will see no problem with voting – because you have no problem with 60% of the producers out there telling the other 40% how to run their business.  But if you don’t support the idea of the single desk, you may very well find the whole process of others deciding on how you manage your own affairs, as repugnant.  If so, you’re not likely going to vote.

No matter how you slice it, whether intentional or not, this plebiscite is not unbiased and clearly favours the single desk.  Regardless that the results undoubtedly will show the majority of ballots show support for the single desk, it will not be a true reflection of the views of producers.  With so many problems with it, it couldn’t possibly.

So much is pointing to rejection of the process by the open market supporters, that we should expect participation to be low.  If so, regardless of the proportion voting in favour of the single desk, this alone should be seen as a rejection of the single desk.  But will the CWB see it that way?

This plebiscite is so fatally flawed its results will prove nothing.

Market Transition Issues

A business plan for the new CWB needs to be developed ASAP – by the CWB, not the government.

In the most recent CWB producer survey (just released), when given the option of a voluntary CWB, the majority of farmers voted for it.  The government is simply saying, if you want a voluntary CWB, we can support it.  But it would be wrong to say that it’s up to the government to come up with a plan for a voluntary CWB because they're the ones who want it.  The onus is on those that want to see a voluntary CWB work to come up with the plan.  Although a majority of the CWB board may chafe at the notion, it's not unreasonable to expect them to devise the best voluntary CWB business plan it can.

If CWB supporters don't see a future for a voluntary CWB, why expect Minister Ritz to?

All financial issues need to be dealt with as soon as possible.

The CWB has said that it should keep the government guarantee; others have said that would mean it has an unfair advantage since sovereign (government-backed) debt comes at lower interest rates.  If there is a sincere desire to have a voluntary CWB and a level playing field, a middle ground needs to be found; perhaps there’s a way to provide backing for financing at commercial rates for an interim period.  Where there’s a will, there’s a way; if the CWB is interested, it needs to say so.

The CWB has said recently that the federal government will need to assume CWB employees’ pension liability.  I have no idea if the liability is “in the hundreds of millions of dollars” as indicated by Allen Oberg, chairman of the CWB board, but the CWB 2009-10 Annual Report does not show a liability of this order.  In fact, page 101 shows the “fair value of plan assets” to be $93.3 million and a plan surplus of $20.3 million.  Even when they combine the pension with “other benefits” the balance is still a surplus of about $11 million.  Unless I’m missing something (which is possible), this is a far cry from a liability in the “hundreds of millions”.

Since the CWB is a “shared governance” agency of the government, it would seem reasonable for the federal government to be ultimately responsible for any shortfalls. 

It would make a lot of sense for the CWB to begin discussions with grain handlers.

As part of its business plan, if it plans on providing marketing services to farmers, the CWB needs to know potential terms of engagement with grain handlers.  I’m told that to date, the CWB has not approached the grain companies to engage in negotiations.  I have also been told that the CWB executive and senior staff would like to but have been instructed by the board that they cannot.  If so, this is a mistake.  The CWB should be talking to all grain companies active in Western Canada in an effort to develop commercial relationships – sooner rather than later.

But perhaps the CWB has no plans on being a grain marketer on behalf of farmer-shareholders.  If that’s the case, it’s a shame the CWB has not yet seen fit to advise the industry on this.

Futures contracts

ICE futures contract design is nearing completion and will be ready for trading asap after legislation is complete and the Aug 1 date for an open market is a done deal.

The plebiscite

  

This is a complete waste of time and resources.  I’ll make a prediction:  the results of this survey will show that the farm community is split on the single desk issue.  Really, nothing else matters.  It doesn’t matter if the single desk gets 20% support or 80%; a proportion of the farm community doesn’t want it and it is autocratic to insist that because some want it that all must suffer by it.  On top of that, it appears that many farmers who want marketing freedom aren’t even going to participate in the vote.  Some are sending their ballots to Minister Ritz as an indication of support for the government, knowing full well that their ballot will not be counted.  Others are refusing to send the ballot in at all, as a form of protest.  This does not bode well for the relevance of the survey.

The trade is getting ready

Although just about everyone in the grain business is getting ready and making internal changes to how they do things – new IT systems, new employees, new processes, revamped funding, new relationships and so forth, it is still too early to expect any overt changes in how they do things.  As one person told me, “we’re just in a holding pattern until we know for sure what’s going to happen”.  This refers to both the legislation going through and what the CWB will look like.

For the next few months, don’t expect to see any earth-shattering news about how the industry is going to look – a t least not until we know more about the CWB itself.  Also, grain companies could offer contracts out past Aug1, 2012, but I think we will see very little in the next few months.

Also, although some companies not active in Western Canada are making enquiries, don’t expect them to take the lead on anything until the CWB is more clearly defined.

This “holding pattern” by the industry is not necessarily a good thing.  As long as the CWB holds back on its future plans and strategies going forward, the grain trade is forced to wait before offering anything meaningfully to farmers.  In the meantime, possible marketing opportunities may be lost.  Pity.

If you pay for the CWB, you get a vote? Then I want my ballot.

In the CWB’s new document, “Dismantling the Canadian Wheat Board: what's at stake”, it talks about how CWB operations are made possible by federal government guarantees:

“The guarantees underwrite initial payments for farmers and the organization's financial borrowings. The CWB and its investors have never had to call upon the borrowing guarantee. The guarantee on initial payments is rarely used. Taxpayers do not fund the CWB.”

So, the government guarantee (taxpayers) covers deficits in the pool accounts that occur when the CWB miscalculates and ends up paying farmers more than what was generated in sales.

In a recent letter to farmers, CWB Chairman Allen Oberg explained why he and others on the CWB board believe that farmers should decide on the future of the CWB:

“...we pay for the CWB, we run it through the farmer-controlled board of directors, and we should decide its future.”

Put another way, “taxpayers don’t fund the CWB”, and those that “pay” for the CWB, get to vote in the CWB’s survey that they like to call a plebiscite.

BUT did you know...

Since 1968, the CWB has had a total of 12 individual pool deficits totaling $1.349 BILLION.  

Let me say it again, with a different spin. 

Canadian taxpayers from Newfoundland to BC have paid $1.349 BILLION to the Canadian Wheat Board because it made a few mistakes in pricing to farmers. 

Still want to say taxpayers don't fund the CWB? Still want to say only farmers pay for the CWB? 

Dismantling the Canadian Wheat Board: What's at Stake?

Allen Oberg's letter to producers

Basis, spreads and marketing freedom

A fundamental benefit of the disposal of the single desk is the ability of producers to respond to market signals.  When we talk about market signals, the attention usually goes to whether the price is simply high or low.  But there’s more to it than just the flat price (the actual full price of a commodity).

To most grain merchants, basis is as important as, or more important than, flat price.  When a company runs a fully hedged book, it means that everything it does is hedged; the aim is to reduce its price risk to basis risk.  And basis is more than just the difference between the cash price and futures. 

Spreads – the difference between two futures months – are closely related to cash basis.  In fact, spreads are a basis of sorts – what drives basis also drives spreads.  Both are market signals that producers should be allowed to exploit.

In an open market, price – both flat price and basis – is an incentive to attract sales and deliveries into the system, or is a disincentive to put off deliveries.  The CWB system mutes those signals and passively draws grain in on the basis of the CWB’s program.  Even though the CWB operates in markets where it’s exposed to market signals or price incentives to either store or ship grain, it appears it doesn’t respond to or exploit them.  If it does, it certainly doesn’t translate that back to producers in a meaningful way. 

Without the single desk, producers will gain the advantage of exploiting market signals to the benefit of their own farm operations.

A simple example; let’s assume it’s September 2012 and spring wheat futures are trading at ICE futures in Winnipeg and street prices are based on them.  On this day the nearby Dec contract is trading at $340.00 and the March contract is trading at $349.00; together they are showing a spread of $9.00 under (Dec under the Mar).  If we assume a static (unchanging) cash basis, the market is willing to pay an additional $9.00 for delivery in March.  In other words, the market will pay to store or carry grain.  Additionally, if you believe the basis will improve by March, there are ways you can exploit that as well – for your gain.

In simple terms, you have two choices. You can sell for spot delivery off the combine and get $340 or sell for March delivery and get $349.  You decide whether $9.00 is worth the trouble of storing.  If the market needs product now and doesn’t want to see it stored, the spread will narrow, giving an incentive to move it now, not later.  All you have to do is act on it.  It’s a great system – very efficient.

A full description of the various strategies you can use to exploit this is beyond the purpose of this article.  The point here is that without the single desk, you CAN exploit this for your benefit.  Imagine: by reacting to market signals, you can get paid to store your grain. 

With the single desk, you can’t do that.  (Don’t even begin to bore me with the CWB’s storage program; $1.20/tonne over 12 months is a token at best; it is not an incentive – mostly because you can’t react to it, you just can get it if you don’t get shipping right away on some programs.)

With access to market signals on the two major crops in Western Canada – canola and wheat – producers will be able to make real marketing decisions on both – not just one.  This is important because producers that grow both have always been forced into selling canola for cash flow and waiting to be told when to deliver wheat.  In the future, producers will be able to decide for themselves which to sell for cash.  This is when understanding spreads become very useful.  If you are indifferent which crop you deliver – wheat or canola – and the canola market is paying a bigger storage premium than wheat, you will be able to exploit that by delivering wheat in a nearby (spot) period and selling canola for a future position.

With the single desk, you can’t do that.

Under the current CWB system, producers sell non-CWB crops like canola when they need cash; because they are not free to sell and deliver wheat, more canola gets sold and delivered in the fall than the market really wants or needs at the time, pushing canola prices lower as the market tries to find a price where it can clear the excess being thrust upon it.  This drives spreads wider, giving buyers an incentive to buy now and store; there’s a reason why the crushers all have loads of storage space.

Being able to read signals and sell and deliver more wheat means less reliance on canola for cash flow, and less pressure on harvest canola prices.  Ultimately, as markets compete for producers’ affections, the playing field for producers gets more level than it’s ever been.  When producer have multiple options – deliver wheat now, deliver wheat later, deliver canola later – the spot price for canola – the one relied on most for cash flow – switches from being pressured lower to find buyers, to moving higher to find willing sellers.

Understanding how markets work and how producers can exploit them without the single desk is one of the most exciting opportunities ahead.

Stay tuned.

Top Ten Reasons to keep the CWB

10.     Pooling.  It’s an equitable distribution of wealth – some win, some lose.  Get over it.

9.       Equity.  Everyone gets the same price.  It’s lower than you’d get otherwise – but at least everyone gets the same.  Would hate to see someone get ahead.

8.       Monopoly / single desk.  Everyone welcome; you don’t even need to sign up.  “You can check out any time you like, but you can never leave.”

7.       Fewer processors ruining the prairie view.  If I wanted all the noise, dust and traffic, I’d move to the city.  This way, my kid has to move to the city to find work.  Great – gets him out of my hair.

6.       Variety registration.  The CWB makes sure farmers can’t grow those pesky US varieties of wheat.  Who needs fusarium resistance anyway?

5.       Premiums.  Let’s see – premiums of $6.65/tonne and marketing costs of $10.40/tonne.  I guess they make it up in volume.

4.       Cash flow.  If you ask for more, you’re just being selfish.

3.       Protection from nasty multi-nationals.  Don’t you just hate it that you’re forced to deal with them on canola - just to pay your wheat and durum bills?

2.       Discretionary Trading.  Where else could you lose close to $350 million speculating with no repercussions?  (2007-08)

And the number one reason for keeping the CWB:

1.       That Darn Plebiscite.  My neighbours decided for me.

CWB Producer Surveys vs the CWB Plebiscite

The CWB conducts producer surveys twice a year. The most recent one was conducted between April 1^st and April 15^th and released June 29, 2011.  The next one is planned for the fall.

They ask loads of questions. The ones I’m interested in are those that relate to the question of marketing freedom.

On the question whether you want the status quo (single desk) or the open market (presumably without the CWB in any form) for wheat, 59% of farmers say they want the status quo.

When the question offers a third option – the “dual market”, the support for the status quo drops to 41%; the dual market option picks up 45% approval – more prefer the dual market idea to the status quo.  (The rest want an open market without the CWB at all.)

On barley, farmers faced with just two options – status quo or open market – showed only 37% support the status quo.  (It’s been this low for years; makes you wonder why the CWB has never listened to farmers and given up barley.  But that’s an argument for another day.)

When the question offers a third option – the “dual market” – the support for the status quo drops to 29%; the dual market option picks up 40% approval. (The rest don’t want the CWB involved at all.)

The CWB has constantly and consistently said that the concept of a “dual market” is impossible.  Under the “myths” section of its website, the CWB states: “The dual market is a myth. There either is or is not a single desk.”  According to Allen Oberg, “the CWB is the single desk”.  No single desk – no CWB.

I believe there are many things the CWB could be doing in an open market, if it only had the vision to see past its single desk.  It seems that close to half the farmers out there agree. 

I think farmers understand the “dual market” idea – the idea that the CWB could perform services even without the single desk.  Restated, the three optional answers to the question are (1) the status quo (no change) – “solely CWB”; (2) a voluntary CWB operating in an open market - the dreaded “dual marketing”; and (3) an open market with no CWB in any form – the “open market”.

Much of the 59% and 37% support for the single desk on wheat and barley, respectively, is soft support. It’s clear that many of them would have opted for a voluntary CWB – if given the choice.

 

There are two points to be made here:

1.      Assuming the CWB surveys over the years have been conducted in a fair and reasonable manner, and the “plebiscite” is also fair, there is no reason to believe that the results will be any different.  Why do we need a “plebiscite” that is really just another survey? 

2.      The CWB’s own surveys have shown the majority of farmers want a choice including a different CWB – not the status quo.  You can be sure the CWB’s plebiscite won’t reflect that.

3.      None of this really matters.  Not the surveys, not the plebiscite.  Voting on how someone conducts his personal business is not the same as voting in an election.  One is a vote on how to run the affairs of an organization; the other is a vote on how to run your affairs.

This plebiscite is one really big red herring.  It’s a stall tactic.  Why else engage in a big, expensive exercise that will not mean anything in the grand scheme of things. 

The CWB is conducting the “plebiscite” to draw attention to what they are saying is the government’s rejection of farmers’ “democratic rights”.  They’re hoping people will feel badly for the poor farmer and put pressure on the government to back down.  

They’re saying farmers need to be able to decide for themselves (by a vote) how their grain is marketed (not government).  How ironic.  Those that want marketing freedom from the CWB have been saying that is all they’ve ever wanted – the freedom to decide for themselves.

You don’t make decisions for yourself by a vote; that’s how you make decisions for others.

 

Quote of the day:

I wish there was a way of getting the message out to people... IF 99% of farmers voted in favour of keeping the single desk, what right does that give those people to say where and who the rest of the 1% must sell their wheat and barley to or through!!!

This has been driving me nuts for years!

             JM