EMOTIONS are bound to run high in any debate on barley marketing. The differences between those who support an open market and those who support the Canadian Wheat Board monopoly are deeply rooted in ideological soil. In those types of debates, compromise is tough to come by.
But that need not get in the way of providing farmers with clear, unbiased information to help them steer their farms in the right directions. Statements issued by open market supporters last week weren’t helpful in that regard.
The Western Canadian Wheat Growers Association suggested that the CWB’s new barley price projections, the Pool Return Outlook, confirmed that the wheat board costs growers millions of dollars.
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Stephen Vandervalk, Alberta vice-president of the association, said in a news release that he personally is “taking a $50,000 financial hit” because of the court decision that forced the federal government to back away from its plan to institute an open barley market on Aug. 1.
How he arrived at that figure is somewhat vague. He sold 70,000 bushels of feed barley when the market was high. Presumably, his loss is derived by comparing market values before and after the court ruling, on 30,000 bushels of feed barley that he did not sell. As well, he has 70,000 bushels of malting barley he can no longer sell on the open market and must take the lower CWB posted price.
His central point that feed and malting barley prices have fallen since the Federal Court ruling is indisputable. Barley futures contracts on the Winnipeg Commodity Exchange also plummeted.
However, blaming the market decline on the court decision is contrary to expert market analysis.
Many farmers likely sold into the feed market when the price was higher – after then-federal agriculture minister Chuck Strahl announced there would be an open market for barley after Aug. 1, but before the court ruling overturned it.
While it’s true the court ruling caused a short-term selloff of barley contracts and a decline in prices, market analysts say that was due to happen regardless.
The Lethbridge elevator feed barley price reached a high of $201 per tonne July 6 and had been slowly declining through July until the court ruling.
On the day of the ruling it dropped to $171 per tonne from $181 the day before, but when considering that the
July 19 price was $173, there was a consistent downward trend that had started before the ruling.
Barley price declines are not unusual just before harvest when more supply becomes available as farmers create bin space for the incoming crop.
The drop in barley futures prices can also be attributed to factors other than the court ruling. Futures on the WCE had been climbing through mid-July mainly due to the prairie heat wave, which sparked speculation about a smaller than expected crop.
But five days before the court ruling, October futures dropped to $172 per tonne on July 26 from $180 the day before.
On Aug. 1, the day after the ruling, the contract fell to $164, but it was back up to $170 on Aug. 3. Although that is still down, it follows the longer term trend.
Futures were being bought by speculators who sold off quickly after the ruling, causing the short-term blip. As well, contracts were being used as hedging tools by some who had expected they’d be able to ship barley to the United States and elsewhere once the open market took effect. When that didn’t happen, they sold, helping to drive futures prices down. Because of the small size of the barley trade at the WCE, it doesn’t take many people jumping out of the market to cause a steep price drop.
In a proper analysis, it’s unfair to expect the CWB to match the highs of the spot price offered last month. Its PRO average prices are based on forecasts for an entire year.
The wheat board was further hampered because it was unable to make barley sales during the high market due to political instability and uncertainty over whether it would be in the market or not after Aug. 1.
The situation is understandably frustrating for market savvy farmers who were able take advantage of the recent high prices, only to have it then taken away.
There could be any number of reasons open marketers could cite for why they believe an open barley market is the way to go for the future of grain marketing.
But pointing to the highly volatile barley market and its drastic decline immediately after the July 31 court ruling is not one of them.
Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Ken Zacharias collaborate in the writing of Western Producer editorials.
