Wheat Price Signals under Market Choice

[charliep]

In an attempt to get wheat out of a canola thread, how would wheat be priced in an Alberta market choice scenario? Would it be necessary to set up a futures market or some other hedging tool? A challenge is to keep the pricing process around sales activities between buyers and sellers separated from the pooling concepts of how proceeds from price pools are distributed.

[boone]

charliep; IMHO, if I may be so forward to suggest, this grain should go directly on the Minn exchange, let their system arbitrage to KC and Chicago. Farmers in Alberta should have the right to deliver against futures at designated Alta. terminals and as well stand for delivery if they should so choose. If Japan wants any they should go to Minn. stand up and bid. This is my thought. Now pick it apart fellas. You know what I've said is sacrilegious, so if you don't hear from me check the hospitals and drag the rivers.

[TOM4CWB]

Charlie;

I see basis risk as one of the biggest problems facing us on Milling wheat sales.

We obviously have tracked Portland prices for years, and have also made comparisons with Seattle export terminal prices vs. Vancouver BC in the past...

Price discovery relating to grade and class of wheat is really the biggest issue... DO we use contracters like SGS, and grade quality based on US spec. or that quality specified by end users based upon Canadian grades?

Canadian Grades are the trade and commerce based, constitutional right, exclusive to the CWB...

which is why we may need to sell on spec with sliding scales of Dark Hard Viterous Kernels, Shrunk Kernels, Damaged Kernels, Frost Damaged Kernels, Bushel weight, Protein, Falling number... and perhaps certified seed of the variety needed by the spec of the end user.

Perhaps a EU grading system is nessasary... as part of the grading system... I understand they have black box tech. that works quite well...

There is much to be thought about... and the Alberta Gov. should be responsible in the end to look after these grading issues... not something that can be done overnight!

[charliep]

As one of the Plutocrats looking at market choice, here are some of the issues I am thinking about.

1) Pricing to end users/exporters. Not much change to current situation. Pricing under both the CWB and open market scenario use futures markets, basis and competitive price analysis with other exporters in daily sales activities.

2) Sourcing - Major differences in the two systems. The CWB sourcing ability comes from its single desk status under its federal act (or the board of directors interpretation of it). The basis for marketing is their sales plan with an objective of optimizing pool returns over a whole year. The private trade/open market uses price signals and contractual arrangements with farmers to source supplies. Their price signals to attract deliveries reflect a shorter time period/spot market but still require planning to optimize facility use/make sure crop is in place to meet sales commitments.

3) Price signals - Open market prices reflect sales over a shorter time period. Class, grade and protein price signals are established based on markets in this period. CWB payments are average prices during the crop year (actually pooling year). Payment relationships reflect spreads that have been determined during the crop year by the CWB.

4) Grades - I don't will change that much under either open market or CWB scenario. In my opinion, there will always be base grades assigned by the CGC. What will happen more is contracts will include other quality attributes and some outside body (CGC or private) will be called upon to mediate disputes.

Thoughts are always appreciated as I use in my thinking process.

[TOM4CWB]

Charlie;

CGC Wheat grades are the trade and commerce constitutional right exclusive to the CWB... unless the CWB willingly allows the use of these grades by the Alberta government.

If Alberta gets the CWB's permission... then your plan will work... if the CWB doesn't want to compete with Alberta CGC graded grain products... then the feds can tell us to get lost, and force us to use a different quality assesment and control system.

Select Barley is a good case in point... the CGC grades don't really mean anything... the decision on what Select Barley quality is... comes from the company selecting the grain... not the CGC!

It depends how we Stick handle our way through these grading system challenges... to how likely the possiblity is that we will actually be able to proceed with an independant test market in Alberta!

[boone]

charliep; actually when the story is written you will have a part as a technocrat. And a good one I think.

[boone]

Charliep; further to this discussion, it would seem fair to me that each farmer and all their existing and future quarter sections that opt out of SINGLE desk pool should be out for at least the ten years. This would not be much to ask, and it would be fair to pooled players. We have seen so much gamesmanship being played between fathers retiring etc. two permit book farms and the circumventing of contracts and liabilities, it is time to take a stand on something that is this fundamental a change to marketing. I'm talking all production of land removed here. Serious decision, Serious business I would think.

[boone]

Boone boone: I would also suggest that the CWB would be only allowed to sell into areas of socialist thinking.

You board huggers are always trying to limit the market and the price. Hey if I have to choose there will be no contest. I have confidence in myself, the free market and domestic value added incentive.

We have a Lethbridge barley market, why not an Edmonton Wheat market. Ontario must base there price somewhere, enlighten me oh bearer of all knowledge, Boone.

I hope you haven't sensed that you have p----- me off Boone Boone.

[TOM4CWB]

Kernel;

At least Boone did not go into a tirade about "cherry picking" !

If you really want to get rid of me boone... fine. My dear wife is right, let the CWB to it's own devices... It will get it's just reward... Bring on the price signals and contracts!

[boone]

tom4cwb; you know I've tried to be constructive here. I've tried to offer up points to build on, you are not suggesting you would want both markets I'm relieved but not surprised. On the other hand I see others have not shown that much backbone or clarity, I guess they don't know how foolish they look. Minn. is a real market and at times it is limited, Lethbridge barley is closer to an over the counter market. It couldn't handle it. It won't be long till American Wheat markets will be forced to look at consolidation, so let's get real here.
There are brokerage houses that clear (offset)more contracts in house than what has been managed there. IF YOU EVER WANT TO KEEP YOUR GRAIN FLOWING SOUTH YOU BETTER GROW AN ALLEGIANCE (KNL) with a commodity trading group to fly under the radar, and have someone in the U.S. camp making your needs known to Washington.

Life is nothing but a competition to

be the criminal rather than the

victim.- BERTRAND RUSSELL

[charliep]

Boone

Agreement that there would have to be some form of contractual arrangement/commitment to CWB or open market by farmers. I don't know about 10 years but likely would have had to have been made ahead of harvest.

Just a note Alberta is looking at a market choice environment within or along side the current CWB system (i.e industry needs to work together). The prime concern is to continue to meet customer demand requirements and allow members of the industry to plan use of resources in the most efficient manner possible. More than one way to skin this cat.

[boone]

charliep; I don't hold this up as an absolute here, just food for thought, and fairness for all, if you or anybody else thinks this is going to come about without some give and take from two entrenched camps then watch nothing happen for ten years. Find constructive points and let's hold them up to the light of day. Anything less is dreaming in technicolour. Have a good weekend guys, and chat to you next week Lord willing. boone

[TOM4CWB]

Charlie;

THe grading issue must be dealt with constructively.

The CWB has the right to use CGC grades under the Constitution... we do not.

Further, for price discovery, it may be real helpful to use US grade spec. standards... to create a base to work from.... But have these standards based in Alberta law, backed by Alberta IP and Quality Assurance Standards... but 3rd party gaurenteed by SGS who can insure international recognition and stability in quality. Even the CGC uses SGS in many International grading disputes!

Alberta needs to use the export terminal at Prince Rupert we paid for... and have it ready to implement a marketing choice plan...

[charliep]

The assumption of market choice is some level of cooperation in the industry. There has to be recognition that customers buy based on CGC grades (perhaps with clauses in the contract that add requirements for other attributes) in most off shore markets. Similarly, I don't think it would be fair to/realistic to have two completely different streams of wheat/barley in the elevator system. Whatever the Alberta government proposes has to both satisfy customer needs and be workable in the current grain handling system.

[TOM4CWB]

Charlie;

I think it will be nessasary for there to be two physical streams of grain in the system that are different.

The blending aspect of the CWB system is one of the reasons end user consumers need direct contract rights to grain I can provide them, directly from my grain bin to them...

This "IP" system is supposed to add value for my customer, therefore allowing my farm the opportunity for sales into a premium market.

I think the CGC, cookie cutter grading system, leaves value behind that needs to be addressed. ALL our cookies are not created equal, or of equal value or quality!