It took awhile, but the Canadian Wheat Board announced its first handling agreement with a grain company last week and promises more to come.
“These are important negotiations so we’re working through them carefully and meticulously,” Dave Simonot, the board’s director of Farm Services told farmers attending the Deerwood Soil and Water Management Association’s annual information meeting March 1.
As of Aug. 1 the board loses its monopoly on the sale of all western Canadian wheat, durum and barley destined for export and domestic human consumption. Instead the board will compete in an open market selling those crops, and others if it wants. Since the board doesn’t own elevators or port terminals it must make deals with firms that do to handle its grain.
The first handling agreement is with Cargill. It’s for more than one year, but board president and CEO Ian White declined to say exactly how long it will be in place.
The board wants to sign similar agreements with all western Canadian elevator companies, White said in an interview March 2. More agreements will be announced this month, he said. Meanwhile, this week the board began a series of meetings across the West to explain its marketing options to farmers.
Cargill purchased Australia’s AWB after it lost its monopoly.
Last month the Grain Growers of Canada raised concerns about the lack of handling agreements between the board and elevator companies. The farm group said it wants a “dual market” to be a real option for farmers.
Asked if the board felt pressured to announce at least one deal sooner than later, White replied: “From our perspective it was to get the first one done because people realize we are coming. We’ve been saying for the last month or so we’re coming forward with contracts etcetera and that was really predicated on getting some handling agreements.”
There are a lot of details to work out and it takes time, White said. In an earlier interview he acknowledged there are also competitive tensions because the board and elevator companies are competing to market farmers’ grain.
Pools on offer
The wheat board will offer pools that cover most of the crop year, similar to those offered in the past, as well as shorter pools and cash and deferred sales contracts.
The board expects many farmers will still want to pool, Simonot said.
“Everyone knows no one gets the top of the market regularly,” he said. “No one does it consistently. In fact the majority of people don’t even achieve the average.
“So the pool provides the opportunity to achieve the average with a low-stress, low-cost approach to marketing.”
Selling through the board also doesn’t tie farmers down to delivering to one grain company.
“We think that’s an advantage in that it keeps some flexibility on your side and puts you in a little bit better negotiating position and hopefully results in a better outcome,” he said.
No matter which middleman farmers use, they need to understand the contracts they sign, Simonot said. When selling grain before harvest, there’s a risk farmers won’t be able to deliver the grade they contracted.
“That will be a significant risk that farmers will be taking on by contracting early,” he said. “We won’t have the flexibility we had in the past when we got all the grain anyway.”
Elevation charges will vary throughout the year, he said. Farmers will pay more at times when the system is being flooded and less when less grain is coming in such as during spring seeding.
The wheat board wants its handling agreements to ensure that when farmers sell through the board they pay the same as other farmers delivering to the same elevator on the same day, Simonot said.
Under the monopoly the wheat board returned all its revenues from grain sales to farmers, less expenses. Although in an open market the board will be a for-profit company and retain earnings, it will charge farmers a per-tonne fee for marketing, he said. The more grain the board markets, the stronger its ability to bargain with the grain handlers. The board’s success depends on how much grain it handles.
“If it turns out to be very large, then the wheat board will have a good future,” Simonot said. “If it doesn’t turn out to be very large the wheat board will have a hard time scrambling because we’ll then have to compete head to head with the existing companies that have all their facilities in place and we’d be at a disadvantage in that game.”
No matter which way it goes, the board’s future is already mapped out in legislation. By no later than 2016 it will either be privatized or wound down.