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CashPlus Additional Payments Attacked And Defended

Farmers who used the Canadian Wheat Board’s (CWB) CashPlus program to sell malting barley last crop year were shortchanged, according to the Malting Industry Association of Canada (MIAC).

However, the board says the allegation doesn’t take all the facts into account and is based on a faulty assumption – that CashPlus barley was sold for the same price throughout the crop year.

The MIAC claims farmers should have received twice as much, or 100 per cent more, in a final additional CashPlus payment based on what its members – four of Canada’s major malting plants – paid the CWB for 200,000 tonnes of malting barley or half the barley sold through the program. In addition to guaranteed upfront cash payments to farmers, MIAC members paid the CWB, on average, almost $26 a tonne, or a total of around $5.2 million.

Last week the CWB announced a final additional CashPlus payment of $12.89 a tonne on 400,000 tonnes totalling $5.2 million.

“We thought there would be more money for farmers in CashPlus because we know from the contracts we made. . . the average holdback was twice as much as the announcement (from the CWB),” MIAC president Phil de Kemp said in an interview Dec. 11.

In a news release, the MIAC wondered if the CWB had used the other $12 a tonne to promote sales to the MIAC’s competitors.

The Western Barley Growers Association, Western Canadian Wheat Growers Association and Conservative MP David Anderson piled on their own criticisms based on the MIAC’s allegations.

The total gross extra revenue earned by CashPlus averaged $19.15 a tonne or almost $7.6 million. The CWB had $6.26 a tonne in CashPlus costs, including administration, risk management, country inventory storage and financing.

The MIAC did pay the CWB, on average, twice as much in additional payments ($26 versus $12 a tonne) for malting barley, than other customers. But Bob Cuthbert, the CWB’s senior malting barley manager, said malting barley prices were much higher at the start of the year.

“They (prices) probably ranged as much as $160 a tonne and that explains part of the range in the holdback or spread,” he said in an interview. “Seven per cent of a $350 contract, which was done earlier in the year, is more dollars (held back) than seven per cent of a $200 contract…”

Even if the CWB had earned an average of $26 a tonne in extra revenue on all 400,000 tonnes, the final additional payment to farmers would not have been double (a 100 per cent increase) as the MIAC contends, but about 55 per cent more, or $7 a tonne. That’s significant, but Cuthbert said it’s based on the assumption that all 400,000

For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca

Grain and oi l s e e d prices at ICE Futures Canada in Winnipeg in the week ended Dec. 11 were little changed despite the fact that the U. S. market posted losses.

Canola values were narrowly mixed, with values pretty steady. Canola was pressured down by weakness in the U. S. soy complex, the continued uncertainty about export sales to China and the large canola supplies in Western Canada. However, balancing that off and accounting for prices being little changed were the weak Canadian dollar, slow farmer selling, friendly technical signals and profitable crush margins. Crushers were notable buyers during the week, with routine exporter buying noted. Speculators were good buyers also. The selling

came from commercials, with steady elevator company selling noted as farmers did price some contracts.

Western barley futures were steady to lower in light trade, with the market undermined by sluggish demand and liquidation trading as participants seem to be getting out of the contract.

Chicago corn and soybean prices were mixed, with soybeans modestly lower and corn a bit higher. The firm U. S. dollar weighed on prices. Soybeans were pressured down by speculative profit-taking. There was little fresh news and speculators were getting tired and wanting to take profits ahead of the Christmas break. Losses were modest as demand from both exporters and the domestic market remain quite strong. Corn fell early in the week on slow exports and profit-taking.

However, as the week wore on, corn bounced back to small gains as a strong two-day winter storm hit the corn belt, catching 12 per cent of the corn crop unharvested and ending the harvest in many areas.

U. S. wheat futures saw moderate losses as the firm U. S. dollar weighed on prices. The large global and U. S. wheat supplies also prompted selling, with bearish technical signals encouraging speculative selling, which also pressured the market down.

SNOWBOUND CORN

The big news in the markets was a winter storm that hit the U. S. Midwest and halted corn harvesting. It was estimated that about 1.2 billion to 1.5 billion bushels of U. S. corn were still to be harvested when the storm hit. Now some of that will be combined, but traders feel that 600 million to 700 million bushels will be left through the winter.

U. S. agronomists indicate that between 30 and 37 per cent of corn left over winter is lost. This would mean that about 200 million bushels would be lost. While this does not seem huge, it is a significant number.

The U. S. Department of Agriculture last week brought out its latest supply-demand reports. Traders considered the reports generally neutral and they were treated with a yawn. One of the main reasons is that production numbers do not represent a survey of farmers and therefore are considered “old.”

The feeling generally about the report is that there was a negative slant to the numbers which, while not roaringly bearish, suggested a bearish slant for the market.

For corn, USDA forecast 2009-10 U. S. ending stocks at 1.675 billion bushels. This was higher than traders expected and up from the November report as USDA lowered U. S. corn exports, because of the current slow export pace.

For the world, USDA pegged 2009-10 corn ending stocks little changed at 132.3 million tonnes. This is relatively tight. In addition, USDA left Chinese corn production unchanged at 155 million tonnes, which caught many in the trade by surprise. The feeling is that the Chinese crop is considerably smaller.

However, if the U. S. loses 200 million bushels of corn due to the snowstorm, that means U. S. corn ending stocks will actually tighten up to the 1.4-billion-bushel level. If demand starts to pick up in 2010, as it is expected to, then ending stocks might actually be lower than that. Everything suggests that the corn outlook is still strong and will be a major market support.

Will that translate into support for Canadian barley? The likely answer is no, as barley is currently being priced against the dried distillers grains (DDGs) that are being imported into Canada from the U. S. This is likely to continue aggressively, as U. S. ethanol production looks like it will remain strong and large amounts of DDGs will continue to move into Canada.

USDA forecast that U. S. 2009-10 soybean ending stocks will be 255 million bushels, a bit higher than traders expected, but down from the November estimate. The main reason for the reduction from November is that China continues to take more and more of the U. S. supply.

OILSEED WEAKNESS

However, in the U. S. trade there is concern that some of the U. S. soybean sales being made to China will ultimately be switched to South America, whose record-large crop will ultimately result in lower prices.

If you wonder how China can do this and not honour its contract to U. S. suppliers, all you have to do is look at a contract and you will see that China attaches so many ludicrous “riders” to the contract that it can wash out the contract very easily. This is true of contracts for the sale of Canadian canola as well.

As a result, oilseed markets do look like they will face severe weakness in the later spring as South American soybeans come in. The only thing that could halt this would be production problems in South America.

All of this suggests selling and pricing your current 2009 canola supplies earlier is strongly suggested. Most farm advisory services are telling their clients to consider pricing at least some of their 2010 canola this winter.

The feeling is that the downside in canola by next fall could be about $50-$75 per tonne below the highs we see this winter.

Demand for canola is still brisk. In the export market, we are less than two canola cargoes behind last year’s level, despite China’s embargo against purchases of Canadian canola. On the crush side we are 100,000 tonnes behind last year’s level as new crushing capacity comes online. The new crushing facilities in the Yorkton area are already pulling canola back from Alberta, where it would normally go to the export market.

For wheat, the USDA report had no good news as it raised the U. S. 2009-10 ending stocks to 900 million bushels, above trade estimates and the November forecast. Globally, it pegged 2009-10 wheat ending stocks at 190.9 million tonnes, up from its November estimate of 188 million.

All of this suggests poor wheat prices and yet values hang in well above US$5 per bushel, not the US$3 everybody expects.

– Don Bousquet is a well-known market analyst

and president of Resource News International (RNI),

a Winnipeg company specializing in grain and

commodity market reporting.

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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