When mad cow disease hit Western Canada in May, 2003, farmers got a lesson in basic economics. The lesson wasn’t so much that prices went down in Canada. Take away the market for something like 50 per cent of the cattle produced in Canada, and prices will take a gut-wrenching tumble. That was a given.
The real lesson came in what happened in the United States. Canadian beef constituted a small amount of the beef consumed in the U. S., something less than three per cent. To Canada, obviously, the amount was huge. To the U. S., not so much. But cattle prices in the U. S. skyrocketed. Farmers were getting record-high prices for their calves, and this continued for some time. The lesson was in the major impact a small change in supply could have on a market fairly well balanced.
It is a lesson that has apparently been forgotten (if it was ever learned) by some Canadian grain producers. These are the people moaning that prices for durum wheat at elevators in the United States in the 2008-09 crop year have been higher than the CWB Pool Return Outlook for durum Western Canada. So we have the vice-president of the Western Canadian Wheat Growers berating the CWB, claiming it is “costing farmers a bundle.”
No doubt there is such a thing as wilful ignorance, but it is hard to believe that Stephen Vandervalk actually believes his own rhetoric. He should know, for example, that the CWB sells only a small proportion of western Canadian durum to the United States in any given year. This crop year, the U. S. has taken about one-sixth of our durum. The entire U. S. durum market amounts to about half of our production. So if Vandervalk could have his way, and start madly trucking his durum across the border to those American elevators, and if all, or even a significant number of Canadian farmers did the same, it would be mad cow in reverse. The huge increase in supply would cause prices to crash faster than you could say, “Geez, how dumb was that?”
Of course, comparing American elevator prices to the pooled CWB price is screwy logic anyway. Five-sixths of our durum goes to countries other than the U. S. Freight costs to get it there are much higher, involving both domestic rail and ocean shipping. Countries like Morocco and Algeria typically don’t pay what richer countries do, so the pooled price reflects a mix of these low and high prices.
To top it off, the CWB has been selling to the U. S. at prices that are higher than the elevator prices Vandervalk is so determined he could get. If he had his way, and crashed the U. S. price, everyone would be a loser.
The other major complaint from the Wheat Growers is that the CWB has not taken all the durum farmers have grown. This crop year, it will be about 80 per cent. This reflects that fact that the market for durum worldwide is finite. Humans only consume so much pasta, couscous, chapati and bulgar. Push more durum onto world markets than the world will consume and it will be sold at feed prices. The problem with this is that durum customers will see durum selling as feed and will reduce their expectations of what they must pay.
American farmers should actually be quite happy with the CWB. By refusing to flood world markets with cheap durum, it has held the price up for farmers on both sides of the border. In a completely open market, price signals for planting durum would come from the dropping prices as farmers pushed too much durum onto the market. With the CWB, the price signal is the fact that we can’t sell all our production. Farmers in my area know this. Durum has been a profitable crop with price premiums over Red Spring wheat virtually every year. But we also know we can’t plant every acre to durum. In the case of durum, the Wheat Growers seem to lack fundamental understanding of how markets work.
Paul Beingessner writes from his farm near Truax, Sask.