The Canadian Wheat Board’s limited success in teaming up with grain handlers to survive the loss of its marketing monopoly is raising doubts about price pooling, a nearly century-old way for farmers to manage their price risk.
The CWB, which loses its monopoly on Aug. 1 and becomes one of many buyers of farmers’ grain, is buying grain for its pools — which are a means of averaging out prices over a period of time and helping farmers avoid volatility.
But farmers are hesitant to commit to the CWB without assurance that they will be able to easily deliver their next crops, since the CWB owns no grain storage elevators of its own.
So far, CWB has struck agreements with only Cargill Ltd. — the third-largest Canadian grain handler — and the single-site South West Terminal.
“It is a concern,” said Lynn Jacobson, a farmer and president of Alberta’s Wild Rose Agricultural Producers.
“If the price (of wheat) starts to slide, you will do better in the pool.”
Jacobson has committed a portion of his expected spring wheat production to the CWB’s pool in hopes that it will strike agreements with more grain handlers, which include Viterra Inc., Richardson International Limited and Louis Dreyfus Corp. Viterra is the target of a friendly takeover bid from Glencore International PLC.
Under the monopoly, the CWB was the only selling option for western growers of wheat and barley for export or domestic consumption. Starting with the crop that farmers are now planting, farmers can shop around for the best prices based on a series of variables like quality grade and protein.
“There’s guys who have never been marketers and they don’t want to have anything to do with marketing, so they like that pooling,” said Norm Hall, a farmer near Wynyard, Saskatchewan, and president of the Agricultural Producers Association of Saskatchewan.
“It’s a whole new world out there.”
The CWB’s chief executive, Ian White, said he expects to reach agreements with all Canadian grain handlers.
“We understand farmers’ concerns and they’re going to want to make decisions as quickly as they can,” he said. “We’re working very hard to get these agreements in place as quickly as we can so farmers have that level of comfort.”
White declined to say how much wheat the CWB has secured so far, but the board has set a goal of pooling one-third of Western Canada’s wheat and barley, based in part on how pooling volumes have grown in Australia, which dumped its own wheat monopoly several years ago.
“At this stage, I’m very confident we’ll have agreements with everyone” handling western grains, White said.
The industry group that represents grain handlers also expects deals to get worked out eventually.
“All of the different elements that need to be negotiated are on the table,” said Wade Sobkowich, executive director of the Western Grain Elevators Association. “It just seems to be taking longer than people expected. It is very complicated.”
Pooling wheat on the Prairies dates back to the 1920s through provincial co-operatives and moved under the wheat board’s monopoly control during the Second World War. The board has long maintained that by pooling so much of the crop, it could command higher prices.
But it remains to be seen if the CWB, without its monopoly clout, can attract a similar volume of wheat, said Murray Fulton, professor of public policy at University of Saskatchewan.
“If you’re going to get the kind of premiums the board was talking about earlier (under its monopoly), you need a lot of volume,” he said. “It’s a bit of a chicken and egg.”
The CWB is already downsizing sharply to prepare for the open market. The CWB currently has around 300 employees, down from 400 in December, and will likely have fewer than 100 workers by the end of 2012.