De Pape is an owner of Integrated Malt Barley Management Ltd. based in Winnipeg.
In recent weeks the Canadian Wheat Board and its supporters have been promoting their view of the value of the CWB by comparing this year’s pool return outlook to the average price received by U.S. farmers selling the same type of wheat or barley.
They say this proves farmers are far better off with the CWB than without it. It doesn’t and they aren’t.
It all started when Canadian farmers began looking at spot prices offered to farmers in North Dakota and Montana, which for spring wheat got as high as $20 per bushel in February, and compared them to the PRO for No. 1 CWRS 13.5 percent protein, which was only about $8.14 per bu. in Saskatchewan at the time. The PRO is now $8.52 per bu. in Saskatchewan.
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Prairie farmers concluded that these high U.S. prices would be accessible to them if it weren’t for the CWB getting in the way. Their voice demanding marketing freedom got increasingly louder.
Along came the CWB’s master spin doctors who said comparing a single U.S. spot price to the CWB PRO is misleading and inappropriate. Instead, since the PRO is the average selling price by the CWB, it should be compared to a similar average price in the United States.
To discredit this comparison further, CWB analysts put forward that the high prices quoted by U.S. elevators last winter shouldn’t be used in any comparison to the PRO because most, if not all, U.S. farmers had already sold their wheat and barley at much lower prices earlier in the year.
According to the CWB, the high prices seen last winter were just bids with no substantial transactions taking place. In other words, even though Canadian farmers couldn’t access these prices directly, U.S. farmers weren’t getting them either.
So when the CWB compared the PRO to what they figure is the average U.S. selling price for 2007-08, the PRO came out on top.
The CWB told us that many U.S. farmers sold spring wheat at prices around $7 per bu., far better than the $4 to $5 per bu. that they were used to getting, but a far cry from the high prices seen later.
Who knew that prices would set records by shooting past $20? Not U.S. farmers, says the CWB. It also suggests Canadian farmers would not have known any better.
Truth be told, the CWB didn’t know either.
Any way you spin this, it comes out that the CWB considers farmers to be inferior marketers. The U.S. “evidence” is their proof and they extend it to Canadian farmers. The CWB thinks Canadian farmers would have sold too early, just like the Americans. Its approach to this whole issue is misleading and offensive.
Consider the CWB argument about comparing the PRO to one price in time, the spot price. Since the CWB doesn’t like this comparison, it follows that it also wouldn’t like other one-time comparisons. However, it suggests comparing annual averages of only one year, 2007-08.
What about all the years before this one? Using prices from only one year is too narrow and ultimately misleading. A rational approach would compare annual average prices over the last decade or two.
I’m certain that even economists that the CWB hires from time to time would agree.
As an example, U.S. farmgate prices for spring wheat in 2006-07 ranged between $4.48 and $6.20 per bu., with the average for the year at $5.37.
For that same crop year, farmers in Saskatchewan ended up with about $4.21for No. 1 CWRS 13.5 percent, over $1 per bu. below the U.S. average and 27 cents per bu. lower than the lowest U.S. farmgate price.
It’s no surprise that the CWB doesn’t talk about that.
These comparisons are based on simplistic assumptions about the marketing behaviour and expertise of farmers.
For instance, the CWB’s Canada-U.S. farmer comparison doesn’t consider that U.S. spring wheat farmers might reasonably sell the wheat they produce and then buy Minneapolis spring wheat futures or options to benefit from the bull market.
A sound, simple and rational strategy available to U.S. farmers, it’s not so straightforward for a Canadian farmer under the CWB system.
When U.S. farmers reportedly sold cash wheat at $7 per bu., the CWB has no way of knowing whether that was the end of the marketing strategy or just the beginning.
It’s far better to look at the marketing by western Canadian canola farmers to assess what western Canadian wheat farmers would do without the CWB. After all, most are one in the same.
Many sold portions of their canola crop throughout the year, taking advantage of record prices later in the crop year. Some sold cash canola early and bought futures to stay in the bull market. Many did very well by these strategies.
The CWB should take note that on their own, farmers are doing much the same thing with canola that the CWB brags it’s doing for them in wheat. For the CWB to suggest farmers can’t independently match or exceed the returns they get from the CWB on the basis of market timing is insulting.
The CWB would like you to believe that it saw this year’s record prices coming. Truth of the matter is, the CWB didn’t. It simply did what it always does. It sold grain throughout the year.
Ironically, this is what canola producers do all the time. It is clearly something that wheat and barley farmers could do on their own, without the CWB.
Where does all this leave the astute marketer who would have stored his wheat to sell it later in the rally? Or the one who would have sold his wheat early and replaced it with futures or options?
Western Canadian wheat and barley farmers are right to be indignant about what they are getting fed by the CWB. The board forces them to accept average prices, even though many could have done better if it was up to them. And then they’re told how great a job the board has done for them.
It’s time for the CWB to stop the propaganda machine and provide farmers with the real facts about it, warts and all.
