SASKATOON – The chief commissioner of the Canadian Wheat Board thinks the problem of price differences between international and domestic feed barley markets can be solved within a single-desk system.
The board proposed buying barley on the cash market when it appeared before the Western Grain Marketing Panel last spring.
Cash buying would supplement pooling and prevent a repeat of the situation that happened in 1994-95 when the board couldn’t get grain to fill lucrative Japanese demand because its Pool Return Outlook, an early estimate of farmers’ returns from the price-sharing pool, was below the domestic market.
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At the Crop Protection Institute annual meeting in Calgary last week, Lorne Hehn said the board’s proposal would address its supply problem, but allow western farmers to still get premiums for malting barley.
He said over the past 10 years, through its monopoly the board has got on average a $70 a tonne premium for two-row malting barley and a $50 premium for six row.
“Our malting barley pool last year in total was about 2.4 million tonnes and if you multiply that by $50 a tonne, you see it’s a considerable amount of money,” he said.
Speaking to reporters later, Hehn said the board has continued to refine its spot buying proposal.
“We’ve thought through this process in a little more detail because obviously in Canada we have to do something about this arbitrage question,” Hehn told reporters.
If given the ability to make spot buys at port, the board would use it when it had good sales interest, but couldn’t attract grain because of competition from the domestic market.
“And coincidently, that is exactly when the arbitrage needs to take place,” he said.
That’s because not only is the board’s return outlook off, but domestic barley prices would have fallen behind U.S. prices and there would be pressure from some farmers to be able to sell south of the border.
The board’s spot buying at port from grain companies would act as a demand stimulant and push up domestic feed prices in line with international prices.
Some have suggested the board buy all its barley from farmers on the basis of spot prices, but Hehn said that wouldn’t work.
“Arbitraging two markets is one thing, but arbitraging two systems is entirely different,” he said.
“If we moved to a daily pricing system based on Minneapolis or Winnipeg, no matter what the exchange or the basis, you are attempting to arbitrage a daily price system with a 12-month pool pricing system.”
The board would also encounter logistical problems because it doesn’t have an elevator system, he said.
“When ever you deal on a spot market you’ve got to have knowledge, every minute and every hour what is coming in because the market price varies with (supply).”
