Now there are a few months under our belts, just how accurate were those horror stories about grain marketing post-CWB monopoly?
Much has been written about how farmers will market their grains in the post-single-desk world. Horror stories abound about how the grain companies won’t take the CWB contracts until they have filled their own, pools won’t reflect fair market prices, and farmers won’t have the expertise to market in the new climate.
Now that we have a few months’ experience under our belts, just how accurate were those stories?
In my own case, the changes have been a little anti-climatic. We operate on a four-year rotation, and half of my acreage has been in off-board crops anyway, so playing in the open market really isn’t new territory. What I do see different this year is the amount of influence outside forces are having on the trade but that could be said for all markets, not just grains.
Our wheat sales in recent years have been a combination of pooling and fixed price contracts, and we’ve been very happy with the returns we’ve been able to extract through our board sales. Unfortunately fixed price contracts were one of the first fatalities at the new CWB, so we have replaced those with occasional private contracts.
Have we stayed in the pools? Absolutely, and it has more to do with marketing strategy than allegiance.
Many producers have been so caught up in the CWB debate in the last two years that emotions have gotten ahead of management decisions. When all the arguing subsides and the dust settles, the CWB has historically returned above-average prices to its producers. Point blank, the CWB has been an effective marketer, and if it can continue to do that in the current atmosphere, pooling is still a viable option.
Did the farmer who sold his entire crop in last fall’s market at $9.25 per bushel do better than the pool? Probably, but like most farmers, I haven’t been in the habit of selling the year’s production at harvest. By participating in the Harvest Pool I have at least captured a portion of that market. By keeping 50 to 70 per cent of production in the pool, I know that I am going to receive an above-average price for that portion of the crop, and with this year’s prices, costs are more than covered. The remaining bushels allow me to play with short-term spikes in the market and allow me to capture extra profits should they occur.
Of course the big disclaimer in that paragraph is “if they should occur,” which takes us back to what analysts refer to as the “black swans” circling over our heads. Weather issues, inaccuracies in stocks reporting, unstable money markets, unstable governments, and buyer reluctance are all weighing heavy on the minds of the speculative funds, and we need those funds to be actively participating if the market is going to climb above nearby levels.
Do I think the funds are coming back into the market? Absolutely, but that being said, I am 70 per cent sold, so I am not betting the farm on it.
Analysts tell us that there are still big stocks of unpriced wheat in the countryside. Farmers holding out for the top dollar in the market is understandable, but hanging on to grain because they were afraid $9.25 wasn’t the top isn’t marketing. That’s gambling. And if you are gambling with 100 per cent of your production, you need to ask yourself if that’s really the best marketing plan.
Many producers seem to think we are looking at another 2008 and it’s only a matter of time before the price goes through the ceiling.
Personally, I hope they are right, and I do think there will be some serious weather scares in the market before the year is out. But the situation is different than it was in 2008.
That year, American farmers were mostly sold out before wheat went over $7 per bushel and the CWB was incrementally selling through the price increases. When speculators took the market over $20, those stocks had clearly been sold off. This year there is a perception that Canadian farmers are still holding on to significant supplies of high-quality milling wheat.
In 2008, the North American economy was also more robust, and buyers were prepared to bid higher. In short, the speculators could take the market higher because there was very little actual grain changing hands. That will be very different if Canadian farmers are holding stocks, and buyers are unwilling to purchase at higher prices. In the end, I am still bullish on short spikes, but I don’t recommend holding out for $26.
Was it difficult to deliver against CWB contracts? Not at all. When the new tax year rolled around and I wanted to deliver, I called up the local elevator and started hauling.
Quite frankly, even as a board supporter I can’t say that I miss delivery quotas or contracts. They were originally put in place to give farmers equal access to the elevator system, but in reality deliveries were limited by rail movement and elevator space anyway. The elimination of local line elevators and branch lines has made the concept of equal delivery obsolete, and I have to say it was very nice to be able to deliver an entire contract in one run.
Can pooled sales survive in this market? That will depend on the attitudes of the people who support it. Has losing 75 per cent of its staff slowed down the CWB’s final payments? Absolutely, but we have to get beyond the fear and mistrust and start making management decisions based on returns.
I don’t understand the hatred and fear-mongering that has gone on with every move the board has made. The recent agreement to work with FNA to source field staff is an indication that this agency is prepared to keep sales up, and keep rural contacts despite the number of people they have lost.
With the degree of foreign takeover we are seeing within the grain and rail sectors, the CWB may soon be the only Canadian-owned entity we have to work with.