While the Canadian Wheat Board had its monopoly, some farmers complained getting a “good, average price” for wheat wasn’t good enough. But in the coming open market, the board is betting lots will think that’s pretty good.
“The average of the market through a pooling operation does actually return people the best value, overall, over a long period of time,” board president and CEO Ian White told a meeting in Oak Bluff, Man. March 15.
“We find there’s still a large number of farmers who find pooling is a good option for them…” White said.
Neil Townsend, the wheat board’s North American market analyst, said when wheat prices peaked several years ago at $25 a bushel, North Dakota farmers averaged just $7.
“The average (price) is better than what most people get,” he said.
“It’s impossible to always really get the top unless you’re lucky.”
In an interview Townsend said an estimated 70 per cent of farmers earn less than the average selling price for their crops.
“The pool is really a multi-year strategy,” he told the meeting. “It’s about getting the average price over an extended period of time.”
Wheat is different
Farmers are comfortable selling other crops on a cash basis. But wheat is different, Starbuck-area farmer Chuck Fossay said later in an interview.
“It’s becoming quite apparent now that the marketing of wheat has always been a very complicated issue that most producers weren’t aware of,” he said. “It is not, and never was, as simple as marketing oats that basically has two grades or canola that has two grades. We are looking at a lot of different marketing factors.”
Another farmer, who asked not to be named, said after hearing the board’s pitch, he’s a bit more optimistic it can survive in an open market, but added its fate ultimately rests with handling companies that have no reason to help it survive.
The board’s future depends on good handling agreements and farmers. “It’s just going to be another grain company offering you marketing opportunities and providing some additional competition in the marketplace,” Fossay said.
For competitive reasons, there’ll be less information about the board’s expected pool returns, Townsend said.
“Farmers need to accept there won’t be a huge amount of price discovery from the pool because… the pool is delivering the average price for the year…” he said.
The board has protocols to ensure the pools get fair and full access to board sales and aren’t disadvantaged by cash sales, White said.
“We’ll employ that methodology to make sure the pool gets the benefit of the sales we make.”
Board officials emphasized the organization is working hard to provide value to farmers in an open market. But there were several references to how the board was able to manage issues like grade spreads, protein and blending when it handled all the wheat in Western Canada.
In the new open market starting Aug. 1 there will be less flexibility because buyers have made sales based on what farmers said they would deliver, Townsend said.
Fossay asked if the board will become the dumping ground for grain other companies won’t take and if so, whether the board could handle that. It depends on farmers, White replied
“If farmers want to deliver significant quantities to the CWB… we can do a lot more with it,” he said. “But if our book is smaller then we’ll be able to do less. That’s the consequence of this market arrangement.”
The wheat board also did a lot of market development to generate premiums for farmers. The new board won’t have the resources for that, Townsend said.
Fewer resources, less flexibility
The board wants to continue providing the quality grain and service that customers say they want, he added. But the question is whether they’ll pay for it in a competitive market.
Canada risks losing its top-quality wheat brand, if exporters buy and sell on minimum specifications, Townsend said. Glencore, the firm rumoured to be trying to buy Viterra, sells wheat based on optional origin, meaning it doesn’t matter where it’s from, he said.
“If a greater percentage of Canadian wheat starts to be sold as if it’s interchangeable with international wheat then that money we used to gather up for selling… that money is gone out of the system.”
But in an interview, White said he thinks Canadian wheat exporters and customers will continue to rely on grades set by the Canadian Grain Commission, at least for a while.
“A lot of customers are very used to our grading system and therefore I think they will be quite keen to continue to take those grades,” he said.