Fortunately or unfortunately - regardless of how you look at it – the federal government is moving ahead with legislation that will repeal the CWB Act. Although that sounds clear and certain, recent events have clouded things over.
First, last June the Friends of the CWB applied for a judicial hearing about how the Government is handling the reform of the CWB. Yesterday was the Government’s chance to explain to a federal judge why there was no case – but it failed. Now the “Friends” will have its day in court as it tries to stop the Government from removing the CWB.
Then there's the CWB's plebiscite. It will be a shock if this ill-conceived survey doesn’t show support for the single desk. With that result, the board of directors of the CWB (more specifically, eight of them) plan to carpet-bomb the country with its pro-monopoly rhetoric in an attempt to sway public opinion as a “Hail Mary” play to get the government to reconsider. According to Allen Oberg, Chairman of the CWB board, even taking legal action against the Government is not out of the question.
These two events provide a generous dose of uncertainty over the next few weeks. While the CWB directors and their “Friends” are muddying the waters with attempts to stop the inevitable, the business of marketing grain goes on.
For example, by this time in the crop year, the CWB has usually offered pricing options to price next year's crop. But not this year. The CWB has announced that it will not offer the futures portion of the 2012-13 Basis Price Contract, and will not be offering the Wheat Storage Program or Churchill Storage Program for 2012-13, all due to the “uncertainty surrounding the CWB's future”.
This leaves a gaping hole in grain marketing opportunities
I was talking to a senior trader with a grain company earlier this week when he said, "You would not believe how much canola we are buying already for next year." With historically high prices, farmers are locking in prices much sooner than they usually do. I figure if farmers had the opportunity to forward price wheat right now, they would.
A friend called yesterday from his combine and told me he usually starts to look at pricing next year's crop right around now. He has used the CWB programs in the past and is now in a quandary; he asked me “what can I do to lock in prices on wheat?”
Winter wheat growers need some price signals right away since they’ll be seeding soon and malt barley buyers tend to lock in supplies early in the crop year. But it appears they’ll see nothing from the CWB.
If the "uncertain future" is keeping it from making commitments to farmers it follows that it shouldn’t make commitments to buyers either. But it should allow the private trade to market next year’s crop now.
So what about the private trade? Why can’t they offer Canadian wheat? Many of us have been through this before – the 1993 Continental Barley and Minister Strahl's "almost open market" of 2007-08. Still licking their wounds from those two nightmares, the trade is waiting until they are certain that an open market is really going to happen before they do anything. Sure, they’re hiring additional staff (even leasing more office space), getting financing in place and revamping computer systems, but trade grain? Nope, not yet.
So, thanks solely to the CWB and its “Friends”, we have a huge gap in western Canadian wheat commerce where nothing is happening due to the uncertain transition from single desk to open market. A gap that will be filled by other wheat exporters like Australia, Argentina, the US and the EU. If the gap is left too long, we could have a pile of wheat to move next year when all the buyers will be partially covered by the time we get our act together. I can easily paint a scenario where movement and prices next year will be jeopardized because of uncertainty now.
Cynics will say that is what the CWB wants. They would enjoy a scenario where the new market without the single desk has low prices, poor movement and lost opportunities. They think it will allow them to say “I told you so”.
I would ordinarily find it hard to believe that those that support the CWB because of the market stability they believe it provides, are the ones that are causing so much uncertainty in the markets right now. But anything is possible, I guess.
The solution is easy - yet hard
To solve this, the CWB could voluntarily provide zero-cost export licenses on any business done for 2012-13 between now and the end of this crop year. It would have to state clearly and unambiguously that, regardless of how we transition to an open market, the CWB will not interfere with any trade that occurred this crop year with these export licenses (unlike past experiences).
It would be as easy as writing a news release announcing this as an “interim program”. Yet hard – perhaps impossible – for the ideologically entrenched eight board members who apparently would rather see disorder and turmoil than resolution and compromise.
And really, they wouldn’t be giving up anything. The CWB isn’t about to do the business so there is nothing to lose by letting someone else do it (without the potential of retribution). The CWB and its “Friends” could continue with their campaign to save the single desk. Actually, facilitating the market during the transition period and assuring there will be no retribution, would even earn the CWB a shipload of respect – an asset going forward as a voluntary enterprise.
If the CWB board doesn’t see it that way, perhaps the Minister could instruct the CWB to provide zero-cost licenses. And while he’s at it, he could relieve the current board of directors of their duties as soon as possible.
For no other reason than for the sake of a healthy market and a smooth transition.
First, last June the Friends of the CWB applied for a judicial hearing about how the Government is handling the reform of the CWB. Yesterday was the Government’s chance to explain to a federal judge why there was no case – but it failed. Now the “Friends” will have its day in court as it tries to stop the Government from removing the CWB.
Then there's the CWB's plebiscite. It will be a shock if this ill-conceived survey doesn’t show support for the single desk. With that result, the board of directors of the CWB (more specifically, eight of them) plan to carpet-bomb the country with its pro-monopoly rhetoric in an attempt to sway public opinion as a “Hail Mary” play to get the government to reconsider. According to Allen Oberg, Chairman of the CWB board, even taking legal action against the Government is not out of the question.
These two events provide a generous dose of uncertainty over the next few weeks. While the CWB directors and their “Friends” are muddying the waters with attempts to stop the inevitable, the business of marketing grain goes on.
For example, by this time in the crop year, the CWB has usually offered pricing options to price next year's crop. But not this year. The CWB has announced that it will not offer the futures portion of the 2012-13 Basis Price Contract, and will not be offering the Wheat Storage Program or Churchill Storage Program for 2012-13, all due to the “uncertainty surrounding the CWB's future”.
This leaves a gaping hole in grain marketing opportunities
I was talking to a senior trader with a grain company earlier this week when he said, "You would not believe how much canola we are buying already for next year." With historically high prices, farmers are locking in prices much sooner than they usually do. I figure if farmers had the opportunity to forward price wheat right now, they would.
A friend called yesterday from his combine and told me he usually starts to look at pricing next year's crop right around now. He has used the CWB programs in the past and is now in a quandary; he asked me “what can I do to lock in prices on wheat?”
Winter wheat growers need some price signals right away since they’ll be seeding soon and malt barley buyers tend to lock in supplies early in the crop year. But it appears they’ll see nothing from the CWB.
If the "uncertain future" is keeping it from making commitments to farmers it follows that it shouldn’t make commitments to buyers either. But it should allow the private trade to market next year’s crop now.
So what about the private trade? Why can’t they offer Canadian wheat? Many of us have been through this before – the 1993 Continental Barley and Minister Strahl's "almost open market" of 2007-08. Still licking their wounds from those two nightmares, the trade is waiting until they are certain that an open market is really going to happen before they do anything. Sure, they’re hiring additional staff (even leasing more office space), getting financing in place and revamping computer systems, but trade grain? Nope, not yet.
So, thanks solely to the CWB and its “Friends”, we have a huge gap in western Canadian wheat commerce where nothing is happening due to the uncertain transition from single desk to open market. A gap that will be filled by other wheat exporters like Australia, Argentina, the US and the EU. If the gap is left too long, we could have a pile of wheat to move next year when all the buyers will be partially covered by the time we get our act together. I can easily paint a scenario where movement and prices next year will be jeopardized because of uncertainty now.
Cynics will say that is what the CWB wants. They would enjoy a scenario where the new market without the single desk has low prices, poor movement and lost opportunities. They think it will allow them to say “I told you so”.
I would ordinarily find it hard to believe that those that support the CWB because of the market stability they believe it provides, are the ones that are causing so much uncertainty in the markets right now. But anything is possible, I guess.
The solution is easy - yet hard
To solve this, the CWB could voluntarily provide zero-cost export licenses on any business done for 2012-13 between now and the end of this crop year. It would have to state clearly and unambiguously that, regardless of how we transition to an open market, the CWB will not interfere with any trade that occurred this crop year with these export licenses (unlike past experiences).
It would be as easy as writing a news release announcing this as an “interim program”. Yet hard – perhaps impossible – for the ideologically entrenched eight board members who apparently would rather see disorder and turmoil than resolution and compromise.
And really, they wouldn’t be giving up anything. The CWB isn’t about to do the business so there is nothing to lose by letting someone else do it (without the potential of retribution). The CWB and its “Friends” could continue with their campaign to save the single desk. Actually, facilitating the market during the transition period and assuring there will be no retribution, would even earn the CWB a shipload of respect – an asset going forward as a voluntary enterprise.
If the CWB board doesn’t see it that way, perhaps the Minister could instruct the CWB to provide zero-cost licenses. And while he’s at it, he could relieve the current board of directors of their duties as soon as possible.
For no other reason than for the sake of a healthy market and a smooth transition.
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