Let the good times roll

Some scoffed when federal Agriculture Minister Gerry Ritz said farmers wouldn’t have to start their trucks in winter because in an open market they could deliver all their wheat in fall.

Not Norm Mabon. The Notre Dame de Lourdes farmer did just as Ritz forecast.

“One hundred per cent of my wheat was sold and gone and the money in my pocket by the end of September,” Mabon said in a pre-Christmas interview from his second home in Arizona.

And he got a great price — $9.25 a bushel for No. 2. Canada Western Red Spring wheat, 13 per cent protein.

“It’s the best thing that ever happened in my life,” he says enthusiastically of the open market. “This makes life great.”

Most farmers haven’t delivered all their wheat, but the point, according to open-market supporters, is they could have if they had wanted to.

“I just love it,” says Sperling farmer Ron Hiebert. “It’s just the best thing for farming. It’s something that we should’ve had years ago because it’s our wheat and we should be able to sell it to whoever we want and right now we can.”

Hiebert is convinced prices are better than they would be if the Canadian Wheat Board still had a monopoly on wheat destined for export of domestic human consumption. He’s planning to quadruple wheat plantings to between 4,000 and 5,000 next spring.

“Things are happening the way I expected, but better,” Hiebert says.

The proof isn’t that wheat prices are up from a year ago. Drought in the United States is a big factor there. The proof, according to Hiebert, is that wheat prices at elevators on either side of the Canada-U.S. border are close to the same. They never used to be, he says.

The U.S. price was often $1 to $2 a bushel higher than the board’s fixed price, according to Hiebert. He expected the gap to narrow in an open market, but not evaporate. But one day in November Canadian wheat prices were 35 cents a bushel higher than in the U.S. and virtually the same Nov. 28, according to Hiebert. Why? He’s convinced it is because the monopoly is gone.

Richard Gray, an agricultural economist at the University of Saskatchewan, says a “back of the envelope calculation,” isn’t a reliable way to determine which marketing system is best. It requires an in-depth study, which he hasn’t done.

“We know the difference between elevator prices has gone down but you can’t tell what’s happened to the American price — if it fell too,” he says. “Some people said you would expect in an open market prices would converge but you’d put downward pressure on the Minneapolis price itself.”

Protein premium gone

Normally Minneapolis spring milling wheat futures trade at a premium to soft red winter wheat futures in Chicago, but the gap narrowed. It could’ve been pressure from Canadian wheat, Gray says. Or a speculative bubble in Chicago.

“You would expect to see that difference go away if they (single-desk CWB) were in fact price discriminating,” Gray says. “What you don’t know is what the net effect is.”

It’s also known U.S. spring wheat basis swings wildly on crop quality and demand.

“This year the protein premium is gone and would there be a protein premium if the board was still there? We don’t know,” Gray says.

Nonetheless, most farmers are pleased with the open market so far, which isn’t surprising.

“You’re not going to blame the grain system for good prices,” he says.

“Product movement is good and the prices are good.

“I’m pleasantly surprised with how things seem to be running.”

Mike Jubinville, a market analyst and president of ProFarmer Canada, expected Canadian and American wheat prices to arbitrage, but not so quickly.

“It really negates the need for a Canadian to travel across the border (to sell wheat),” Jubinville says.

Dec. 10 the bid price for No. 1 Dark Northern Spring wheat, 14 per cent protein, in a Bottineau, North Dakota elevator was $8.38 a bushel, Jubinville says. Seventy-five kilometres to the north at Viterra’s Boissevain elevator No. 1 Canada Western Red Spring wheat, 13.5 per cent protein, was $8.34 a bushel — virtually the same price for roughly equivalent quality milling wheat.

Jubinville doesn’t buy theories that Western Canada’s open market could pressure American wheat prices.

“The dog wags the tail, the tail doesn’t wag the dog and the United States is the dog,” he says.

Early harvest

The transition to an open market has gone smoothly in part because of an early harvest of a high-quality crop coupled with strong prices, industry officials say. Grain companies and the railways also know they’re under a microscope and determined not to give open-market skeptics any ammunition to launch an attack.

The open market is an unqualified success, says Hiebert. Even longtime wheat board supporters are selling in the open market, Hiebert notes.

Harder, who farms at Lowe Farm, pooled some of his wheat and has sold for cash too. But like many single-desk supporters he predicted the CWB would offer little benefit in an open market because more sellers mean lower prices. Relying on your competitor’s handling facilities doesn’t help the CWB either.

“Wheat prices all over the world have gone up and that has nothing to do with it going on the open market,” Harder says.

“Once we have disease issues it’s going to be a lot different.”

While Harder says the transition has mostly gone well, he says sometimes grain companies won’t take delivery of his CWB wheat when they will accept non-board.

“I really can’t win with this,” Harder says. “If the wheat board does really well in the next couple of years they’re just going to sell it to a private company anyway.

“And if it doesn’t do well I lose at the elevator door right now.”

The open market’s superiority to the single desk might not be empirical, but many farmers perceive it to be, an industry official who asked not to be named says. And perception is reality.

Too early

If a plebiscite were held among farmers the open market would easily win, he adds.

Still, there are farmers who say it’s too early to pass final judgment, says Jubinville.

“I think a lot of growers are thinking it looks good right now but we’ll see after two or three years if the right thing was done here.”

There’s a learning curve, even though farmers have plenty of experience with other open-market crops, including canola, says Mabon, a former farm management specialist with Manitoba Agriculture. Sometimes grade and protein premiums and discounts can vary more than the underlying futures price. Farmers need to study their contracts and be aware of the required grade specifications.

Farmers need to pay attention to market signals too. If the basis is over the futures or inverted that means grain companies want the grain now, not later.

Naturally most farmers are approaching the open market cautiously, says Mabon. Many have sold very little wheat. There could be a rush to deliver next summer, he says. As a result the system won’t be able to handle it all and prices will fall, unless bad weather threatens the new crop.

When asked if he’s now an open-market supporter, Swift Current, Sask., farmer Stewart Wells chuckles.

“The short answer is 90 days into this crop year is not going to be an indicator of the medium- and long-term ramifications for farmers,” says Wells, a former wheat board director and single-desk supporter.

“Our pooled price was almost always higher than their (U.S.) average weighted price,” he says when asked about Canadian and U.S. wheat prices converging.

“The real question is how high would’ve prices been if there was just the single desk?”

Wells and Harder and Hiebert and Mabon have different answers. The marketing system has changed. But their points of view haven’t.

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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