Canadian Wheat Board critics say they have an apples-to-apples comparison of durum prices that shows the marketing agency is falling down on the job.
In late May, the Western Canadian Wheat Growers Association issued a news release pointing out that the CWB’s projected Pool Return Outlook for No. 1 durum was well below the average elevator price in the Golden Triangle region of Montana.
The board countered that wasn’t a fair comparison because the PRO is a reflection of sales into all export destinations, not just the lucrative U.S. marketplace. The comparison also didn’t take into account the cost of transporting grain from Canada’s durum growing areas into Montana.
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That prompted a follow-up comparison by those opposed to the CWB’s monopoly.
Saskatoon crop analyst Larry Weber noted that as of June 5, the spot bid for durum at the New Century Ag elevator in Fortuna, North Dakota, just 11 kilometres south of the U.S. border, was $3.66 per bushel higher than the CWB’s 2009-10 durum fixed price contract.
“This is spot price versus spot price, not a spot versus a pooled price,” said Weber.
CWB spokesperson Maureen Fitzhenry said the fixed price contract is not meant to be a U.S. spot price, but a flat price that reflects a global export program, so all the same arguments apply.
“Any comparison to the U.S. would be an assumption that you could sell all the grain in Canada into the U.S.,” she said.
The board expects to sell to the U.S. 600,000 tonnes of durum this crop year, which represents about 17 percent of its anticipated 2008-09 durum export program.
Weber said that rationalization does not mitigate the fact that a U.S. durum farmer can get more for his grain than his Canadian counterpart.
“On the same day, at the same moment, a Saskatchewan farmer could walk across the line seven miles and get $3.66 a bushel more,” he said.
Fitzhenry said another problem with the most recent price comparison is that the CWB’s fixed price contract includes an up-front risk discount to manage the risk of offering a fixed price to growers for a crop that has no futures market against which to hedge.
A portion of any unused risk discount could be returned to growers after the end of the 2009-10 marketing year, which would shrink that $3.66 spread.
Weber said the farmer in Fortuna doesn’t have to worry about such administrative costs and he didn’t buy the CWB’s explanation for being so far from the U.S. spot price.
“What they’re in effect saying is they cannot risk manage as well as the Americans,” he said.
Weber wondered why the U.S. will export an estimated 500,000 tonnes of durum this year, filling the void with Canadian product, if the CWB is fetching the premium over American spot prices that it contends it is getting south of the border.
Fitzhenry said U.S. exporters are shipping out California desert durum grown under irrigation, which has “super-high quality” and fetches a big premium in markets like Morocco. That creates a shortage for U.S. domestic mills.
“So we come in there and are able to make some really good price sales,” she said.
Weber said the majority of U.S. durum is exported through the Gulf of Mexico. He finds it hard to believe that California crops would travel that far across the country.
“That makes no sense,” he said.
Don Varty, a grain farmer from Elrose, Sask., is also upset with the CWB’s durum marketing program.
“The reason they do this fixed price is to try and emulate more of a spot market price than the pool, but obviously it isn’t working when there is that much of a price discrepancy.”
Varty is irritated that the board was quoting about $9.50 a bu. last week for him to buy his durum back so he could do a producer direct sale into the U.S.
“They effectively lock us out of premium markets by overcharging us.”
Fitzhenry said the attractive U.S. spot prices that are the source of all this angst would disappear overnight if the board lost its monopoly on wheat and barley exports because Canadian grain would flood across the border and drive those prices down.
She also pointed out that the U.S. spot prices do not represent actual returns to farmers because they do not account for the timing of deliveries.
“It’s just way, way too simplistic to look over at a posted elevator price and say, ‘There, I could get that if it wasn’t for the wheat board,'” said Fitzhenry.
