By Ed White
It’s time for farmers to start worrying about the fate of the Prairies’ mid-sized middlemen — the small grain companies, the traders and analysts.
It’s also time for farmers to wake up to how vulnerable they could become to manipulation and control by a few giant vested interests who have information from their large networks but have no responsibility to disseminate it.
Farmers could be kept in the dark.
There’s a real danger that farmers could in a few years become the sort of “price-takers” that thousands have complained about for decades and drift into that form of price servitude unwittingly.
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This point comes to me from comments I’ve heard recently from mid-sized grain merchants, grain industry analysts and American traders.
It’s a concern about the tiny number of big grain companies that control today’s prairie grain trade, the lack of transparency with Canadian grain purchases and sales and the unclear picture of the true state of prairie crops growing in the field.
However, it’s not a concern I’ve heard much about from farmers.
I suppose the recent years of high grain prices and general prosperity in crop farming can do that: make one feel safe in a new environment far away from the days of woe that for so long held sway.
But what will happen in the coming years as the giant grain companies refine their systems?
Will there be a role for mid-sized grain companies that don’t own elevator and port networks? Such companies play a crucial role now in finding markets and making sales of Canadian crops.
But with the CWB’s system controls gone, are the big companies going to naturally see the little guys as competitors and push them out of the market? Why wouldn’t they?
And how about price transparency? We don’t have much of that now, although farmers don’t realize it. Farmers can get a range of cash prices from prospective buyers by calling around and asking.
That doesn’t apply as easily to traders, analysts and economists — to the markets in general. The big companies are not keen to have all their buying prices published.
In the United States, buyers and sellers in crops and livestock are required to release to the government a limited set of prices they have transacted in pre-determined locations.
In Canada, no government requires such reporting.
Two farmers told me in the past week they didn’t really care about this because they can call around, but I think it hurts the price structure of prairie crops to have murkiness about the real cash prices that are being set.
The same farmers said that every buyer relies on Minneapolis spring wheat futures to set the baseline for Western Canada’s wheat crop pricing, so they just compare their local prices to Minneapolis and figure out if the basis is good or bad.
But the Minneapolis price depends partly on traders in that market knowing what’s happening on the ground in Western Canada, and they have a lot of trouble doing that. Traders I visited in Minneapolis recently told me as much.
This wasn’t a big issue in the days of the CWB monopoly because the board established prices and paid out farmers accordingly.
However, that’s obviously no longer the case. Farmers once had both the CWB and the Minneapolis market to give them a sense of what their wheat was worth. That is no longer the case.
The murkiness about price also extends to the status of prairie crops.
The U.S. Department of Agriculture’s weekly crop progress report provides farmers and traders a one-stop information source from which to assess likely U.S. crop supply fundamentals.
In Canada, each prairie province produces its own crop report, each one looking at things in different ways at different times. In the past, the CWB’s impressive crop surveillance function gave overarching meaning to the individual provincial reports.
Traders worry that without having a solid sense of the state of the prairie crop, their job of price discovery is made more difficult and the potential to be wrong rises.
Today’s high crop prices and huge demand allow most farmers to ignore these issues.
However, if grain stocks build and prices fall, they might discover they’re ill-equipped to defend their interests or even know if they are being treated fairly.
