Conference: Operating Successfully in a New Grain Marketing Environment

[charliep]

I got an announcement for the following conference. Don't know the size/registration requirements but interesting topics. By this time, there should be a lot more information/decisions so topics will be focused on a go forward basis.

[URL="http://www.kis.usask.ca/GrainConference.html"]USASK[/URL]

[blackpowder]

Might be worth the effort. Thanks Charlie.

[LWeber]

The University of Saskatchewan at C-18 Committee


http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=5225861&Language=E&Mode=1&P arl=41&Ses=1#Int-4565569



Professor Kenneth A. Rosaasen (Professor, University of Saskatchewan):

Thank you, Mr. Chairman, and good evening.


I'm Kenneth Rosaasen. I'm an agricultural economist, a professor at the University of Saskatchewan. I grew up on a family farm, and I continue to farm with my family on a farm that started in 1905.


I'd like to outline some of the long-term impacts of Bill C-18, as proposed, and also focus on the uncertainty that it's creating.


The first is the impact of the loss of revenue to the farm sector. Others have already spoken of the approximately $400 million to $600 million per year and the studies done by reputable economists on that. Directors who were not certain when they became directors, as Ian pointed out, soon became strong supporters once they saw the internal operation.


Removing the single desk removes income from farmers, and transfers it to consumers in other nations largely. And it also creates greater opportunities, perhaps, for the marketing margins of grain companies.


The Canadian federal government strongly supported, as did Saskatchewan, the maintenance of Canpotex, a single desk for potash. Conceptually, the economics are similar. Saskatchewan potash received the deserved federal recognition as a strategic resource. Are not the food production resources and the crops produced as important in western Canada?


Bill C-18, as proposed, will remove the entire farmer-elected boards and replace them with five appointed government directors. I call this the government marketing agency, because essentially they're expropriating the assets that now belong to farmers. This is different from simply the wind-up cost, which is also being discussed by your auditors.


Someone suggested that the Wheat Board also has value as an ongoing entity, producing approximately $400 million to $600 million in revenues per year. What is the capitalized value of this moving forward? In some legislation, when changes are made, compensation is negotiated and paid to those who are the losers. The Western Grain Transportation Act paid out compensation because of the loss of the rail freight payments. The tobacco buyout by your government recently did the same thing to recognize the cost to losers. Sometimes it's done by compensation, sometimes it's sought through the courts.


Some assert that a CWB without a single desk can be viable. I don't think this is correct, for several reasons. The new government marketing agency will not have any physical delivery points, either in country or at terminals. It will rely solely on the goodwill of powerful grain companies for access, which I believe is naive, at best. CEOs are rewarded based on their bottom line, not on their goodwill to new entrants in a market.


Second, with no ability to physically control the product, the blending opportunities will accrue to the companies, not the government marketing agencies. Clearly, one should not be surprised that the grain trade is clamouring to achieve these increased marketing margins from people who might deliver to this new grain marketing agency of the government. This agency might be able to operate as a broker and perhaps as a pooling mechanism. I think its survival is highly unlikely.


When the Australian Wheat Board moved in this direction, it had a much longer transition period, and it had assets, and it was given substantial legislative conditions in terms of delivery and access, and other things. Yet is no longer there but was sold to Cargill.


The third component of any organization, including this new government marketing agency, is the directors and the skill set they possess. We don't know who they are and we don't know what type of competent staff might remain during a period of transition and uncertainty.


Based on the current bill as proposed, our farm would not sign any contract to deliver to this new marketing agency. And numerous farmers I have talked to feel the same way. Our farm has used the fixed marketing tools and the ability to forward price. I teach grain marketing classes. We do contract canola and I've already sold the crop I plan to plant for the fall of 2012. I can't do that for wheat. There is no futures market in place and no one has yet taken the risk.

(1825)


In Canada, we don't have a great record with how our futures markets operate. We've had a failed futures market for flax, rye, peas, oats, feed wheat, and now feed barley has virtually no open interest or delivery volume. This is not something to be proud of.


The major challenge is developing one for wheat, and some people paint canola as a shining example. How many actually look at the contract, the number one contract with 8% dockage as the deliverable grade? That means at $12 a bushel, when I see the quoted price, I don't get paid for the dockage. They subtract that from me, but that's what's deliverable on the contract. They don't let farmers deliver on a contract in cash in futures. They don't let them move together, which is one of the keys.


Ian has covered producer cars. There is legislation that says you can deliver, but that doesn't matter if you can't unload it at the other end. You need revised legislation to reflect the changing reality in the world.


The Wheat Board has been a defender of wheat and durum and barley farmers in countervail actions launched by the U.S. or others. Who will do that now? The EU and others have sought the elimination of the Wheat Board. The U.S. tries to beat it up as a state trader. I asked our negotiator how we were doing. It's pretty hard to negotiate something when your government is giving it away.


Bill C-18 is going to have major ramifications for prairie grain farmers, and the rapid speed at which it is moving is unforeseen. I have followed government activities--the Crow rate, the feed grains policy debate--and nothing has been rushed through like this.


I would suggest that in many areas we use new variety testing, we do small plots for chemicals and other things, so that we get it right. I'd say that we should be doing the same here. Using this rational approach, if the government is determined to proceed, I would suggest that it be done with a continental barley market in August of 2012, with wheat and durum delayed for one year because of all the uncertainty.


The government will still have a majority a year from now. There are fixed election dates, On the farm where I grew up, my father and uncle gave me some advice: When you're building something, measure twice, cut once. A more precise plan than what is outlined in Bill C-18 is needed to foster a smoother transition of the prairie grain marketing and transportation system, with a lot less uncertainty and long-term costs.


Thank you for listening.

Prof. Kenneth A. Rosaasen:
I would concur that it is adding tremendous instability. People who own short-line railways and have money invested ask how this is going to run. What provisions are going to be in place in the bill to make sure that when we load cars, we can have them unloaded? Who is going to put that in place as legislation? Companies have to behave to make profits; that's what shareholder accountability is about. They'll do so within the law.


Governments sometimes put in place regulations to improve performance, curb monopoly power, and have a better total system for everyone. In my view, this has not been well enough thought through to ensure that this occurs.


Normally, when there were major changes, like with the Crow rate or other things, there were significant numbers of studies--


Mr. Pat Martin:
That's right, a significant number of studies, and--


Prof. Kenneth A. Rosaasen:
There were numbers of studies, and--


Mr. Pat Martin:
--surely some cost-benefit analysis was tabled to demonstrate that there's a business case.


Do you know of any reasonable economic or business case made that says this move will result in more money in the pockets of prairie farmers? Does any such evidence exist?


Prof. Kenneth A. Rosaasen:
It's contrary to economic theory to say you'll do better for the community without a single desk than you will with it. That's what the people who have looked at the books say.


Sometimes you get people who look at a spot price across the U.S. to make a comparison and say, “Today I could get more and I'm the smartest marketer in the world.” But, overall, it will be a loss to the prairie economy.

[charliep]

I would look at the list of speakers. Not all are regulated market supporters. Mostly acedemic as warning but will deal with issues.

Hopefully the conference serves as spring board to move ahead into the new world. The question I am getting today is what will these changes (by this time no proposed or theory) mean to my business. Not negative or positive - just tell me the rules so I can adapt my business and marketing strategy. Suspect there will be lots of activities through a number of different channels to support managers during this time of change.

[LWeber]

Organizing Committee:

Gary Storey (Chair)
Ken Rosaasen
Richard Gray
Murray Fulton
____________________________________

Do you have a monopoly on rose colored glasses Charlie?

[charliep]

Maybe you are right. People can attend and judge for themselves.

Looking forward to the new world and dealing with the really critical issues. In my mind, the issues we should be dealing with on wheat relate to competitiveness.

Off my own topic but here is an article I found really interesting and where I think industry leadership should be going.

[URL="http://www.canada.com/Agriculture crossroads With Alberta output falling producers looking traditional ways generating/5719395/story.html"]Agriculture at the Crossroads[/URL]

[craig]

Looks like the board needed to put some more emphasis on their campaign on western canada than the east. Surprised how many farmers knew nothing about the campaign. Also shows board support is in eastern Alberta.

[Wheatking]

Just goes to show you where they are focusing their campaign and our advertising dollars, definitely not to farmers because 50% never even heard of the campaign. Yet most of the facebook posts to save the board come from the east, very few farmers posting saying they want the board saved. The guy from Vermillion said it the best.

[Burbert]

Its the silent majority that want to keep
the cwb. Thats why they ain't saying
nothng, duhhhhhhhhhh!!!!

[craig]

Burbert
Are you sure it's not the silent majority that want to turf the CWB.

[wd9]

i'm pretty sure the steamroller is running out of steam.

[parsley]

U of S 's fanatical state marketing ag-econ
socialists, who have lived off farmer's pooling
accounts for decade, are the primary sessionists
in a conference on marketing in an open market
arena?

Is this insanity in disguise? Pars.

[charliep]

I don't think I would call Bill Wilson, Barry Prentice, James Rude or Colin Carter rabid socialists. Other things may push things off the track.

Note to self - You may have been around too long when you know all the presenters.

[wd9]

They took Shaun's video off the steamroller page. They censor at will.

[btjadenlepp]

Well if that's the definition of being
around too long Charlie, Jon and I are
in trouble!

FarmLink has just launched a series of
1-day courses on wheat, durum and barley
marketing to run this winter. I ran the
first pilot in Brandon this past
Tuesday, and I think it went pretty
well.

www.farmlinksolutions.ca