The CWB a Magician at work?

[TOM4CWB]

Vader;

I though the other thread was getting really long, so here goes!

We seem to have a big problem with CWB integrity here, and I need some straight answers. Maybe you can help since you seem to be doing Thalpenny's job now!

You just said, "The millers have exacting specification for protein, falling numbers, ash content, gluten strength. If they could get those quality factors with consistent service from their own producers, they wouldn't need Canadian wheat."

Now, because the US DOES have a free trade agreement with Canada, we “designated area” producers are allowed to sell to the US Domestic Market.

And if you studied the USITC Report, you should have seen that US and Canadian quality wheat is interchangeable, and has been substituted back and forth, to the extent that recently US wheat made it’s way into a Canadian Cargo of wheat, and was co-mingled, this summer in Vancouver B.C.

I understand that, recently, the CWB has been buying US Wheat, to deliver to CWB customers who the CWB cannot supply this year, because of all the bad weather on the Canadian Prairies!

When I offer my wheat to Columbia Grain in Montana, they do not say;

"TOM4CWB, you come from Canada, so we will give you a lower price than we, Columbia Grain, give to our local US growers."

Columbia Grain gave me the same price, as they gave US growers because handle for them is why they are in business... and more handle is more profit.

Now when Columbia Grain gave me from over $1.50/bu more than the CWB was offering, and you say the CWB does not cut prices, then how could these people still be in business?

Columbia Grain just signed an operational agreement with General Mills elevators in Montana, so they are obviously good managers or… General Mills would not be offering these elevators…, to Columbia Grain…, to use!

Now we come to the part that really debunks the CWB Myths that you proclaim to have swallowed hook line and sinker!

When Columbia Grain buys my wheat, this wheat by law must be consumed in the US. It is necessary then for my wheat to displace US wheat that would have otherwise gone into these domestic millers mills to make flour.

Now Columbia Grain must sell and export the displaced US grain through Seattle, which is why my price that I was paid was a basis off the Seattle WA export selling price. I was paid the posted price at the elevator, nothing more.

Reviewing now, I sell wheat, both low quality and high quality (3CWRS, 1CWES, 1CPS and 1CWRS) to Columbia Grain, they deliver my wheat to a domestic US Mill, and then Columbia Grain sells the Displaced US grain offshore.

Since I was paid significantly more that what the CWB paid for the same grain, then it becomes rather obvious that the CWB is not able to market my wheat as efficiently as Columbia Grain, in either the US or Export offshore markets!

To top it all off, the CWB marketing system uses a transportation system that costs $.75/bu less than the US transportation providers to get to the west coast port of Seattle!

Now we are not missing $1.50/bu, we are missing $2.25/bu.

Then comes the amazing part, the CWB pays me up to $15/t extra, after getting this higher US price, and I know Vader you are well aware of this as well!

So what exactly are you doing when you are now defending this CWB monopoly, that is causing so much grief on both sides of the US Canadian border, and why are you and the CWB doing this?

Isn't the CWB argument,just like, the magician proclaiming that the impossible is possible?

[Vader]

You miss the point entirely TOM4CWB. You didn't sell your wheat for $1.50 more than the CWB could sell it for. In fact you know absolutely nothing about what the CWB sells wheat for in the USofA. that is commercially sensitive information that is not released.

You might have beaten the CWB's average selling price by a buck and a half but could you do that selling to Taiwan, Bahrain, Indonesia, Ecuador, or Guatemala?

Remember, only 10% of our wheat goes to the US. 90% of our wheat goes offshore. Why don't you start marketing offshore and see if you can still beat the average.

Anyone can market into the US and beat the CWB average. ANYBODY!!

If you do sell into the US, and you market at $1.00 less than what the CWB was getting in the USA, how does that help Canadian farmers in the long run?

No TOM4CWB you are the magician in this instance and when you pull the rabbit from the hat you are pulling other farmers money from their pockets. Those farmers that want the maximum price for their grain from the US market.

The US is a market that continually challenges our right to be there. If not for the CWB fighting off these challenges the tariffs going into the US might become entirely prohibitive. Farmers have paid for the right to market into the US through their support of the CWB and it is not a right that you should be allowed to take away from them.

[TOM4CWB]

Vader;

How many buy-back transactions have you done?

The CWB magician says, when the buy-back is done, the price I pay the CWB is the commercially sensitive US domestic price that you say is so high! So the CWB is supposed to be charging the difference between the price inside and outside Canada…, and the pecuniary benefit enuring to me the Applicant.

So why exactly did the CWB send me a cheque for $15/t? While at the same time I got $1.50/bu more on top of the CWB topup…?

Now, you say, “Remember, only 10% of our wheat goes to the US. 90% of our wheat goes offshore. Why don't you start marketing offshore and see if you can still beat the average. “

As you have correctly pointed out; “The US produces twice the amount of wheat that they consume. They are the worlds largest exporter of wheat at 26% of world trade.”

This 2X domestic consumption export volume means that the US domestic market Arbitrages international wheat markets most of the time.

Now again, we get to my points;

“Reviewing now, I sell wheat, both low quality and high quality (3CWRS, 1CWES, 1CPS and 1CWRS) to Columbia Grain, they deliver my wheat to a domestic US Mill, and then Columbia Grain sells the Displaced US grain offshore.

Since I was paid significantly more that what the CWB paid for the same grain, then it becomes rather obvious that the CWB is not able to market my wheat as efficiently as Columbia Grain, in either the US or Export offshore markets!

To top it all off, the CWB marketing system uses a transportation system that costs $.75/bu less than the US transportation providers to get to the west coast port of Seattle!

Now we are not missing $1.50/bu, we are missing $2.25/bu.

Then comes the amazing part, the CWB pays me up to $15/t extra, after getting this higher US price, and I know Vader you are well aware of this as well!

Vader, I did not just cherry pick CWRS, which normally the highest buyback returns have come from, I exported lower quality wheat the CWB says is worth so much less.

And if CWRS quality is worth so much extra, why exactly does the CWB price Domestic Canadian millers off Minneapolis or Portland export prices? Why did the same USITC you quote US Millers saying that CWRS and DNS were directly interchangeable?

Will you admit now Vader, that the buyback system is a convenient CWB magicians scheme, that has nothing to do with the price inside and outside Canada, (as the CWB is required to keep this price the same anyway)

Will you admit further Vader, that the CWB buyback charged or paid as the case may be, has absolutely nothing to do with how much the “designated area” grower actually got when this product was sold in the US of A?

Now, don't the CWB Directors have an obligation to follow the CWB Act?

[Everest]

Dear Vader,

You say, "Anyone can market into the US and beat the CWB average. ANYBODY!!"

You seem quite emphatic about it. And I agree with you 100%.

Canadian farmers can beat it. US farmers too.

That is why on this side of the border a majority of farmers support a voluntary CWB. As you say, an open market delivers more money than the CWB single desk.

Your observation is absolutely bang on.

So why, as it seems, do you support and insist on a policy of strict adherance to the monopoly mantra?

Sincerely,
Everest

[Vader]

TOM4CWB,

Help me understand what you are saying about Columbia grain.

How many tonnes/bushels of grain did you sell? What location did you deliver to? What grade did they assign? Was you grain graded in Canada and if so what grade was assigned? How much was your check for?

[ianben]

Excuse me for butting in here but it might help me show how
our dual system was so bad.
ANYBODY could beat the MMB in a specific market except maybe cheese.
EVERYBODY could not!!!
Someone ended up selling for cheese.
Milk is milk like wheat is wheat.
So what happens the cheese guys under cut till we all recieve the cheese price.
Leaving the MMB made things even worse we left all the low priced contracts in one place with a inexperience open market player determined to have a future and farmers giving them their milk to market as before.

The MMB was not the alternative buyer we imagined but a hugely competative seller.

Be aware being free will not be as simple as you think.

You as individuals will have the same problems the US has with the CWB now.

Think as yourselves as a N Dakotan farmer and see how they feel.

[Vader]

Ianben,

You hit the nail on the head. Does the CWB buy wheat from farmers or does it sell the farmers wheat? That is the question.

If someone believes that the CWB is buying their wheat then they will never see eye to eye with those who answer the question the other way and I am not sure if there can even be a production discussion.

[TOM4CWB]

Ianben;

One obvious point, there is a huge difference between perishable milk, and wheat that can be safely store for years, with reasonably little cost.

Further, milk is at much less risk of a huge fluctuation in supply, as weather is much less a risk in actual production determination.

Obviously we are not talking about apples to apples, but apples to pears.

Now Vader, how do we take what Ianben has said and turn it into a productive discussion?

Ianben pointed out that if the Milk Marketing Board had been more progressive in preparing for a choice market place, and had built trust up with those who they did daily business with, that the transition would have gone much better...

Now Vader;

If the CWB wants me to actually grow wheat, and be satisfied with their performance, why cannot the CWB cash price?

The CWB Act was opened up in 1998 to allow a full cash pricing system, yet the CWB totally still bases everything on the pools.

CWB Marketing problems are made worse, when the communistic ideas are floated as fair and that the individual has no rights.

Simple things, things like;

At no time can a 3CWRS be worth more than a 1CWRS. Thalpenny is wrong, with PPO's this can already happen now.

Being stubborn, and failing to change is not only foolish but suicidal.

If the monopoly is worth saving, then legislative changes are needed to make it legal to begin with...

And respect must be offered to those who shoulder the biggest weight of the CWB Monopoly... the commercial farmer who produces 80% of your product but is only 20% of your client base.

If these things are dealt with Vader, then don't you think trust could start to be rebuilt?

[Vader]

You have made some very positive statements. I am sure these are issues that can be worked on.

Perhaps you can expand on some of your thoughts going forward on the cash pricing program, and whatever legislative changes you think might be necessary.

[TOM4CWB]

Vader;

On Cash pricing...

Every time the CWB loads wheat in a ship, a cash price reconciled to an actual sale could and should be created.

This comparison is needed for benchmarking, if the sale was previously committed, and not hedged.

And an opportunity, limited, on a first come first serve base, needs to be presented to those who need to cash price. Those without unlimited financial reserves need these opportunities to pay bills.

THE Early Payment Option (EPO) does this in a small way.

But the EPO adds cost to my costs of production, and here is why.

CWB EPO #1CWRS 13.5 at $280/t PRO at $312/t.

Cash price today Port, lets say for easy figuring $330/t.

Now, I am satisfied with $330/t.

What is the best I can do?

$280/t minus a CWB tax of approx. $11/t, and I now have $269/t.

The CWB has just offered me about 80% of what my product is actually worth today, on today's world price.

The CWB forces me to speculate with $61/t, and I don't want or need to speculate, unless that is what my risk management plan specifies.

And when I take this issue to my banker, you know what my banker will say, TAKE THE $61/t and don't speculate.

These are very simple steps that need to be taken, but Thalpenny's attitude that a #1CWRS can never be worth less than a #3CWRS, are not acceptable.

A #3CWRS 13.5 this crop year could well be worth more than a #1 CWRS 13.5 was worth last crop year... and there could have been a decision in this past June to take either crop year.

The Messed up June PRO really threw a monkey wrench into many.
Had Farmers been given proper market signals, they would have gotten into the 02-03 pool, but that is another related issue that needs to be dealt with seperately.

So what the CWB is doing is not fair, and it is not fair to the CWB staff to expect them to be crystal ball marketers, when seeing the future is impossible.

Obviously the present system is not sustainable, and the sooner we get about changing it, the sooner we can rebuild trust and loyalty between us as farmers... that we will become responsible for what happens with marketing for our own farm, not the neighbours farm!

[TOM4CWB]

Vader;

The first statement "Every time the CWB loads wheat in a ship, a cash price reconciled to an actual sale[... VALUE...(that day)...] could and should be created."

"This comparison is needed for benchmarking". "If the sale was previously committed, and not hedged" back..., then an assement needs to be made on whether the timing of decision taken to sell was correct.

I must determine whether my marketing decisions are good decisions, and continually try to improve my marketing skills.... by always reviewing what I have done, and learning what I could have done better. The CWB, if honest, and if it is working to become a better marketer, must do the same.

On Legislation;

I sure have taken some flack on this suggestion, personally!!!

Scoldings, phone calls... this is a mine field...

TO rectify the legislative monopoly conundrum the CWB has created, without totally destroying the CWB will be tough. I suppose this is why nothing was done to fix and legalise the monopoly to begin with... which probably means now it would be even harder...

But failing to own up to these legislative.... problems and ....conundrums,
.... will be deadly in the long term, so all the best on this one!!!

[TOM4CWB]

Coming a little late to this particular thread - but here's my thoughts.

One - comparing a spot price to a pooled price is a very deceiving comparison, and one where tom4cwb is being selective. In the example where there is a rising market, the pooled price will lag, and the spot/cash price will look more attractive. Maybe even by $1.50/bu that tom4cwb claims! This also explains why, in a falling market the buyback price can actually be below the pool return, as tom4cwb described.

two- the CWb has the obligation to reflect the relative value of grain back to the farmer. So the concept that a #1CWRS should be more than a #3CWRS is upheld. Again, over the course of a year, or over two crop years, the market may present an instance where on a particular day the #3 captures a higher return than the #1 did on some previous day. But on the day the #3 was sold, I guarantee you that the value of #1 was also higher. So the timing of sales risk is eliminated through pooling. This is a fundamental principle that I think all farmers support.

three - Regarding the PPO's, the prospect of market risk/reward that is offered with the PPO programs presents the opportunity for a difference in this grade price relationship compared to the pool. But the princip;le remains for thos in the PPO program who execute the same prices and delivery on the same days. Compared to the pool, any market movement is accounted for through hedging, and grade spread risk through the risk discount. So the principle of proper grade price relationships remains intact with the pool account.

four - The idea of the CWB doing back to back sales and offering a cash price will undermine the pool prices. It is not possible offer pooled price versus cash price without having an impact on the pooled price. Again - in simple terms, if a cash price were offered for Japanese business, and reflected back to the farmgate, it would always exceed the pool price offering, except in a steeply declining market. That is because they pay a PREMIUM, and the CWB collects that for all farmers.

Tom

[TOM4CWB]

Thalpenny;

The magician is really at work...

You want it both ways, at the same time!

When I got $1.50/bu more than the CWB offered, how come the CWB gave me $12/t to $17/t, for getting more money?

Where does the CWB Act authorise this crazy situation?

NOW let us talk about premium markets for a moment.

As Vader properly pointed out, the US of A exports 2x the wheat it uses domestically.

Obviously the export market will arbitage the domestic market, as the majority of their wheat is exported.

SO I cannot get more than the world export price, when I ship to the US of A. When my product is used domestically, I displace US wheat, and push the equal amount of US wheat into the export market.

Since the US marketer is paying myself, and the US wheat grower the same value/bu, I do get a valid world price for my wheat.

The Japaneese market is part of the US export market, along with all the other countries the US ships much more to than the CWB.

So if the CWB does not have to market my wheat, and this leaves a bigger "premium" market for the CWB to fill, why should the CWB be upset if I decide not to offer my wheat to them?

ANY way this is sliced, the CWB magicians illusion does not fool me, not for a second!

People pay a premium price for premium products, because they are inherently worth more, not because a monopoly extracted a premium.

The Canola market today is a perfect example... today the price is shooting through the roof, not diving through the floor, because it is a "multi-seller" diciplined market!

[TOM4CWB]

Thalpenny;

Your statement:

“The idea of the CWB doing back to back sales and offering a cash price will undermine the pool prices. It is not possible offer pooled price versus cash price without having an impact on the pooled price.”

If it is not possible to have a pooled price operate while there is Cash Prices, why does the CWB allow PPO Basis Contracts?

Clearly the CWB states on all PPO offers, that they can be withdrawn at any time… exactly why would this not be applicable if cash prices were offered during the crop year?

What is the EPO, is it not a form of cash pricing?

On grade spreads, if the CWB offers a cash price, why wouldn’t the CWB maintain the proper spread between the classes and grades, and maintain pricing integrity? The pool takes the loss when the CWB supplies #1CWRS for a #3CWRS/CPS/CWES sale now, what is the difference?

If a cash price were offered, this transparent signal would alert the CWB if it were offering a price that was too low. If no one offers grain at the cash price the CWB has offered, obviously the CWB is NOT returning a reasonable value, signaling the CWB that it must raise the price offered to farmers.
The CWB simply then tells the consuming customer they must offer more to get the product. This is how a multi-seller system extracts a premium.

Willing….. seller, willing….. buyer, then a sales value is fair… and then completed. Isn’t the CWB’s job to facilitate this interaction in an orderly manner?

Or would there be no room for a magician in this type of a system?

[TOM4CWB]

You have now come to understand two of the principles that the Board of Directors emphasized in the creation of the payment options.

one - that the pool account will remain unaffected by the offering of the PPO's. That is one reason why the Fixed and Basis contracts are not offered past Aug 1.

two - that appropriate risk management be undertaken to insulate the pool from any market risk created by the PPO's. The EPO offering has a discount that covers the cost of ensuring there is no market gain or loss to the pool account from the use of this program. That is why the accounting is separate through a contingency account. The EPO represents a portion of the forecast return (90%) so I'd hardly call that a cash price, when the farmer is eligible for any pool account payments over the EPO value he collected.

I would argue that if there were a single desk seller of canola, a bigger pile of money could be created from the canola grown each year. Especially given the small number of major markets that we currently ship to.

I think the master illusionists here are you, parsely, kernel and eatmorewheat who perpetrate this myth that somehow the CWB is underpricing the market. But the argument of the CWB as oppresor and some kind of punitive government system does not stand the test of logic. In fact, it is the epitome of capitalism - private firms around the world would love to have a situation such as the CWB, a government granted single desk. The difference being that the profits would go to shareholders instead of to participating farmers.

There is a real avoidance to talk about the open market system and its foibles. No one could answer me a few threads ago when I quoted current elevator prices at Bottineau that were just slightly below the PRO when converted to Cdn dollars. What about basis levels on canola that range from zero to $30 over right now? With this rationalized handling system, you better hope that your elevator company has made some sales and booked the space through Vancouver wharves to ship their product. Or else you will face the BIG basis.

The example you gave of your delivery to the US probably comes from a time when the US was using EEP to artifically increase the domestic price in the US...


Tom