• You will need to login or register before you can post a message. If you already have an Agriville account login by clicking the login icon on the top right corner of the page. If you are a new user you will need to Register.

Announcement

Collapse
No announcement yet.

Pooling can work if you want it

Collapse
X
Collapse
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Pooling can work if you want it

    Allen Oberg, chairman of the CWB, stated
    recently that a voluntary CWB would not likely
    offer pooling because “farmers aren’t likely to be
    interested”.  He added: “...you’re never sure of
    how much grain is going to be contracted to that
    voluntary pool and that makes it difficult to make
    sales.”

    I think Mr. Oberg is wrong on both accounts.  The
    CWB’s producer survey showed 45% of wheat
    producers favoured the “dual market” (a voluntary
    CWB) and 41% preferred the single desk.  The
    CWB has stated many times that pooling is
    fundamental to the value proposition of the CWB
    as it is a fundamental risk management tool for
    farmers.  If that’s true, it stands that many
    producers would expect to see the CWB offer
    some form of risk management in the form of a
    pool (or pools) once it loses its single desk and
    becomes voluntary.

    Also, Mr. Oberg is repeating the old CWB position
    that a voluntary pool won’t work, based on the
    assumption that it will have a fixed price or value
    (like an Initial Payment or PRO).  They say
    farmers will opt out when the “open market” price
    moves higher and, in a falling market, farmers
    will want in or those farmers that are in the pool
    will suddenly find that they had astounding yields
    and want to deliver more than the CWB
    anticipated.  So in a rising market, the pool gets
    starved and in a falling market, the pool gets
    overwhelmed with high priced grain.  The thing is,
    none of this needs to happen.

    A SUCCESSFUL VOLUNTARY POOL – RIGHT
    IN OUR BACKYARD

    Although Mr. Oberg suggests that there are many
    reasons why there are not pools in other crops
    like canola, oats, peas or lentils, he is mistaken
    to believe that there are none.  A very successful
    pool is operated by Viterra out of Bow Island, AB. 
    This pool has been successfully managing risk
    for, I’m told, about 100 edible bean producers in
    the area since it was run by Alberta Wheat Pool.  
    I’m also told that even though there are times
    when the open market price climbs above the
    pool price, the pool is very successful at retaining
    members.  They see it as a long term prospect,
    and over the years, they’ve done very well.  They
    also know that if they were to opt out, there are
    five more waiting to take their spot.  Once out, it
    would take a long time to get back in – so guess
    what?  They don’t leave.

    POOLS DON’T HAVE TO BE “ONE SIZE FITS
    ALL”

    Pools could be developed with different focuses:
    ·         A specific class or variety of wheat
    ·         Grain from a specific region or with specific
    quality parameters
    ·         Grain going to a singular buyer (a good
    example would be something like the Warburtons
    program). 
    ·         A few years ago, a colleague suggested a
    separate pool for high quality wheat destined for
    Japan.
    ·         A select group – producer car loaders on a
    short line share a common goal to reduce costs
    and make their investment work.  They could
    easily market their grain together and pool all the
    returns; a voluntary CWB could provide
    marketing and pooling administration.
    ·         Unpriced pools – there is nothing magic
    about the CWB when it comes to timing of
    pricings (selling futures).  A pool could be offered
    that gives its members a fixed basis as its only
    price guarantee.  Pricing would be at the option
    of the producer, or he could choose the option of
    having his portion of the pool professionally
    managed (priced).  Pools could compete on the
    strengths of the pool managers’ track record,
    much like a mutual fund.

    When I acted as a consultant to Prairie Pasta
    Producers (PPP), the CWB rejected the idea of
    PPP, a co-op of about 600 farmers, processing
    their own durum without going through the CWB
    and its pool.  To the CWB, it would mean PPP
    members were “cherry picking” the high valued
    domestic market.  I suggested that every durum
    farmer in Western Canada should be encouraged
    to join and support the coop; that way, every
    durum farmer would benefit from selling directly
    to their own processing plant.  Further, I
    suggested that the CWB could also enable and
    support it by offering a separate “pasta pool” for
    those involved; this way every participating
    durum farmer would get the same return from
    their sale to their processing plant.  All other
    deliveries would go through the conventional
    durum pool.  Obviously the idea never went
    anywhere.

    There are also some developments in electronic
    trading that enables the development of
    averaging indexes that represent the average
    pricing of a commodity over a selected period. 
    The index would be based on a specific cash
    market; the electronic trading system would be
    set up to generate the index based on trades
    going through the system.  Although used
    extensively in energy markets, it could be applied
    to agriculture quite easily.  Grain companies (and
    the new CWB) could offer pools on the basis of
    these indexes, which could average the price
    over any predetermined period –from weekly to
    annually.  So to get the average price over a pool
    period is easier than ever.

    WHEN IT COMES TO POOLING, WHY JUST
    THE CWB

     All this talk of different pools begs the question:
    once the CWB no longer has the single desk,
    government guarantees or enabling legislation,
    what is it?  CWB supporters have said, perhaps
    rightly, “the CWB will not be anything more than
    a broker or another grain company.”  This is
    especially true if the new CWB doesn’t offer
    pooling, as Mr. Oberg is suggesting.

    The federal government is committed to enabling
    a voluntary CWB.  If the CWB becomes just
    another grain company, and anyone can pool,
    perhaps the federal government should look at
    new legislation that would provide the new CWB
    – or any other entity – with the appropriate tools
    to compete in the pooling and risk management
    arena.

    #2
    When I read what oberg said, I too had to scratch my head.

    "Farmers aren't likely to be interested..." ?? The supporters are interested when non supporters are forced in, but won't support you even when it's voluntary? WTF?

    You have been pooling grain and telling us we are getting premiums for decades and all that knowledge and experience won't matter when farmers have to think about signing up for a pool?

    How about you don't pool and just offer a daily cash price? (Like any other grain broker). I have 500 tonne of #3 HRS in the bin, how much will you offer me Alan?

    Pretty hard stuff.

    Comment


      #3
      Emalt highlighted the AWB estimated pool returns for malt barley and got me checking out their website to confirm. Interesting that pooling is very much alive and a part of the new AWB product line. Will start with the quote on malt barley (will let you compare the 2010/11 PRO) and then the AWB link.

      Quote: AWB 2010/11 barley pools unchanged (22/07/2011)

      Estimated pool returns (EPRs) for the AWB 2010/11 season barley pools remain steady, BA1 barley grade EPR remains unchanged at $350 a tonne in the AWB Western Pool, $331 a tonne in the South Australian Pool and $327 a tonne in the East Coast Pool (FOB, exclusive GST).

      Aussie $350/tonne converts to Cdn $365. Aussie $331/tonne to Cdn $345.

      [URL="http://www.awb.com.au/growers/"]AWB[/URL]

      Comment


        #4
        If Oberg has decided that he isn't going to run a voluntary pool he's more of a Kamikaze pilot than I thought.

        Comment


          #5
          pooling is alive and well in australia.
          if you contract tonnes into AWB pool by 29th of july for coming harvest in nov/dec you pick up a $15 per tonne premium.

          Comment


            #6
            No, I'm wrong with my analogy. Kamikaze pilots never attacked their own ships while committing suicide.

            Comment


              #7
              malleefarmer

              When is the beginning of the Aussie crop year?

              Any comments on how aggressive the different Aussie marketing agencies are ahead of harvest? I suspect the AWB is very disciplined around using shorter pooling periods and making sure they have farmer contracted volumes allocated against actual sales/hedging programs.

              Under the pricing pace model, the CWB sells over a 15 to 18 month period. The CWB can forward sell up to likely about 15 % plus/minus of the crop ahead of the crop beginning (August 1) and are likely close to 25 % mid September when harvest is in full swing. works okay for wheat. Malt barley is different story in that the amount priced in the spring is a really good thing or a bad one depending on whether the forward price is high or low relative to market after harvest and the actual volume of malt barley produced in Canada and around the world. Pricing model doesn't work so well with malt barley and tends to distort real values.

              Comment


                #8
                John,

                Perhaps the real change in the new world will be how the operations side manages risk around a price pooling system in an open. Can be done but the process needs to change perhaps starting with shorter pooling periods and making sure farmer contracted volumes are lined up against sales. Grain companies do this every day. The CWB has never had to.

                Comment


                  #9
                  John, great article - important topic.
                  The only part I disagree with is the
                  federal government enabling a voluntary
                  pool.

                  A pool pricing contract is not rocket
                  science, and it doesn't need the support
                  of government to be successful. In fact,
                  that would probably kill it because it
                  needs to be simple and competitive,
                  which is never the case when regulators
                  get involved.

                  My guess has been that 20-30% of the
                  tonnes would be marketed through a
                  voluntary CWB pool. We'd happily
                  recommend clients market an increment
                  through it, assuming it's a decent
                  contract.

                  Yesterday I was speaking on this issue
                  at a plot tour in Boissevain to around
                  100 farmers. I asked for a show of hands
                  on who would use a voluntary pool, and
                  got the same ratio - 20-30%. Note this
                  included quite a few producers who also
                  raised their hands when I asked who's
                  looking forward to the end of the CWB's
                  monopoly.

                  I've completely had it with the
                  defeatist attitude over there. The lack
                  of exposure their staff have had,
                  especially at the upper management
                  level, to commercial grain trading
                  realities is really starting to shine
                  through now.

                  Comment


                    #10
                    Brenda, John, Charlie et al:

                    We pool all our sales of pedigreed seed... voluntarily...

                    We pool sell our grass seed sales.

                    We often both ask permission when to sell and add a pool component to our crop share sales...

                    Chairman Oberg may not have any voluntary pools on his own farm... but then if this is the case... it just shows how out of touch he is with western Canadian grain growers.

                    I bet however...if Allen stopped and thought... he does have voluntary pooling on his own farm as well.

                    Comment


                      #11
                      Brenda:
                      I don't disagree with your comments that a pool
                      does not require govt involvement. But, two
                      things:

                      1. Pools like the Viterra bean pool already have
                      government involvement with government
                      guarantees on their initial payments. Ontario
                      wheat board too.

                      2. What I am suggesting is that whatever the
                      Feds think they need to do for the CWB, they
                      should not restrict it to just the CWB. There is
                      nothing magic about the CWB once the act is
                      gone and what remains should not be treated
                      any better than any other competing entity. If the
                      government guarantees are to be extended for a
                      period, then they should be available to others as
                      well.

                      If the Feds favour the CWB shell, even for an
                      interim period, then they haven't gone far
                      enough, IMHO.

                      The antithesis of a monopoly is competition - so
                      why stop at one pool provider.

                      Comment


                        #12
                        September/October
                        Pools vary from express pools closed in jan and finalized in sept of same calender year.
                        Others take 18mnths plus and everything in between

                        You can store grain and run your own pool if you wish some go down that path.

                        Seems to me standard procedure if a farmer has top quality wheat ie hard 13% we call it or australian prime hard you take cash until domestic market of flour millers is full then the remaining wheat is usually pooled.

                        Some specialty noodle wheats are pooled for souith east asian market and rest of the wheatmy guess is 20 to 30% pooled 30 sold for cash just prior to,during or after harvest another 10/20% sold early in season before crop is planted ie foward selling cash for cash price in feb to april for sale in nov/dec and the remainder of the wheat is sold well post harvest ie may june july year after harvest.

                        Cargills who may have never run a pool inthe whole bussiness life are very aggressive with there pool options now they have merged with AWB.

                        Alot of piss and wind about the cargill awb deal but now its done and dusted most think it kinda exciting especially all other pool operators have to pull up there socks and compete more.

                        Shit i think i just said a swear word "compete/competition" its not in the canadian dictionary

                        Comment


                          #13
                          I can't imagine an independent CWB without pooling. That was the main tool for the original "POOLS" to bring fairness to the producer in what he received for his grain.

                          Oberg is just being stubborn and it won't do him any good if he precedes along this course. Even his supporters will turn on him on this one.

                          The "POOLS" will most likely have a different form but they could still work quite well. With the computerized modern systems we have now it should be a snap really.

                          Comment


                            #14
                            hey wilagro, some stranger seems to be
                            posting under your handle. did you just
                            agree with us?

                            just kidding. i appreciate your comment
                            and totally agree.

                            Comment


                              #15
                              I suspect the main challenge in any pooling system will be to get delivery commitment from farmers. Providing them with a value proposition that will encourage them to sign tonnage contracts and provide whoever runs the pooling system security they can go out and make sales. The same problems exist today as highlighted by the CWB requests to get high quality durum and upper grade/protein wheat in the system to satisfy Japanese business.

                              I note malleefarmer comments over time in the level of creativity and innovation in Australia to make this happen. Our issue is we are moving from a one size fits all pooling system based on a 15 to 18 month sales period to something completely different.

                              A CWB that can retain farmer loyalty will be a powerfull force in the new world. Loyalty equals tonnes contracted.

                              Comment

                              • Reply to this Thread
                              • Return to Topic List
                              Working...