If the prairie wheat crop suffers this summer, the Canadian Wheat Board will be commended for holding off on sales in 1998-99.
But if high quality wheat is plentiful, the board may be in for some criticism as premiums shrink for high quality stocks.
A trio of agricultural economists said there’s no way of knowing for sure whether the wheat board’s sales strategy is the right approach.
“There’s not a definitive answer,” said Daryl Kraft of the University of Manitoba. “It’s fraught with risk.”
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The wheat board recently came under fire for a slower-paced sales program that will see exports fall to their lowest level since the drought of 1988-89, and carry-out stocks rise significantly above last year’s levels.
Board officials say they are maximizing farmers’ returns by selling the small but exceptionally high quality crop to customers who are willing to pay more for it.
The wheat board had a difficult choice this year, said Kraft, given that convincing millers around the world to pay more for high quality wheat is “a tough sell” when they face difficult economic times, and there is lots of lower quality wheat on the market.
“You can flog it all at a lower price, or maintain a premium and not sell it all,” he explained.
“There’s no certainty to either choice,” said Kraft, adding no market analyst can say definitively whether the wheat board made the right decision.
Harvey Brooks, of the University of Alberta, said wheat board officials would know from conversations with buyers how willing they are to buy more grain and how sensitive they are to price increases.
Officials would also have a good idea how much grain competitors have to sell and what strategies they are using, he said.
Brooks, who used to work at the wheat board, said officials there would have to consider what impact it would have on prices if it tried to buy a larger market share through discounting prices. By holding grain, the wheat board is betting prices won’t go down, but will rise by at least enough to cover the carrying costs for the stocks, he said.
Richard Gray, of the University of Saskatchewan, said there is a possibility that prairie farmers will have a low quality wheat crop in 1999, leading to huge premiums for leftover 1998 supplies.
“It’s a good idea, I think, to retain some of that (high quality wheat) in the event we have bad weather,” said Gray.
Because the wheat board has a larger market analysis team than most private sector grain companies, it may have some ability to “outguess the market,” said Gray. But he noted the board “is sticking its neck out a little bit” with its strategy.
“If you’re really good at doing this stuff (outguessing the market), you’re going to be wrong 30 or 40 percent of the time.”
Gray said he sympathizes with farmers who are angry with the slower sales pace because they need cash now.
A cash advance on carryover board grain stocks from the federal government might help farmers with cash flow, while giving the wheat board the flexibility to make inter-marketing year arbitrage decisions, said Gray.
