Monday, October 18, 2010
There are farmers saying they won’t vote in the CWB elections because they don’t grow CWB crops. They say that they really don’t care what the CWB does or doesn’t do because it doesn’t have anything to do with them.
Well, it does.
Delivery of CWB grains is restricted by the CWB “calling” grain into the system – you’d like to deliver more but you can’t. As most farm bills come due in the fall, farmers need to sell grain to pay the bills. Since they can’t deliver enough CWB grains to pay the bills, they sell something else.
A friend once joked that he grew peas so that he could pay his durum production bills in the fall. It’d be funny if it wasn’t true. Between the low Initial Payment and 50% contract calls, there just isn’t the cash flow needed to cover the input costs. So peas or canola or some other crop carries the burden.
Canola is the big one – the big non-CWB crop that gets sold at harvest or shortly after to pay the bills. The problem is that too much canola gets pushed into the system in the fall. As canola stocks build in the primary elevator system to more than a million tonnes in most years, the basis can weaken by as much as $30/tonne (or more) – we’ve all seen it. This is not elevator companies taking advantage of you because they know you need to sell - grain handlers use price to get farmers to slow down on deliveries and – at the same time – to get buyers to buy more (or attract price sensitive buyers, like Mexico). Once the stocks in the elevators begin to get cleared up, the basis works its way back up to as much as even money to futures, as buyers look for prices that will now attract new deliveries into the system.
Feed barley is another big one. I’ve already talked a few times about the current export feed barley program that is costing all feed barley producers – even those that don’t sell to the CWB – millions.
The CWB’s passive system of “inventory management” makes the whole system – for all crops – dysfunctional. Whether they are manipulated, managed or free, markets provide signals and incentives to both buyers and sellers. In western Canada, since they get the same price regardless of when they deliver, farmers have the incentive to deliver wheat early in the crop year (instead of holding it for later delivery); yet they can’t deliver any more than the CWB allows. On the other hand, the canola market gives incentives (signals) to sell for delivery later in the year; yet many can’t as they need the cash now, not later.
When the CWB states it doesn’t distort markets, it’s wrong. Among others, it distorts the markets for all the non-CWB crops grown in western Canada. And it’s not to the benefit of the farmer.
Don’t think for a minute that because you don’t sell to the CWB that it doesn’t concern you. It does. If you’re a grain farmer, and even if you don’t sell grain to the CWB, your vote in the director’s election is important.
Posted by John De Pape at 9:46 PM