CWB Disparities

Marketing Boards, Media Appearances, Regulation, Rolf Penner (historic), Rural, Uncategorized

Re: “The case rests on shaky math,” Rolf Penner, Opinion, July 3.

Rolf Penner makes a price comparison between wheat at Bottineau, N.D. and Boissevain, Manitoba. While this analysis is a worthwhile exercise, it does not provide the foundation to support Penner‘s conclusions.

Penner‘s analysis refers to a June 14 wheat price in Bottineau of $6.10 Cdn per bushel. A little digging reveals that this price is actually quoted at Alton, N.D., which is 350 kilometres closer to the Minneapolis market than Bottineau. The Bottineau price for that day was $5.39 US per bushel, which converts to $5.73 Cdn per bushel.

Penner compounds the error by extrapolating a single comparison (one type of wheat on one day at one point in North Dakota versus one point in Manitoba) as representative of the experience across the entirety of Western Canada every day of the year. Even the most casual observers of the debate should question such an over-simplistic approach.

Penner believes posted prices, particularly U.S. wheat prices and Canadian freight and elevation, accurately represent farmers’ experience in these transactions. Anecdotal evidence indicates Canadian farmers are often able to do better than the posted charges, but U.S. prices are often unattainable unless your grain is very, very good.

These costs and prices on both sides of the border are more variable than Penner lets on and can certainly affect this analysis by several cents per bushel on both sides of the equation.

Greg Arason is president and CEO of the Canadian Wheat Board.

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Penner response to Arason, On -Wheat Price Comparison-

Greg Arason has a valid criticism when he points out that Alton Grain terminal is not located in Bottineau, North Dakota, as I had originally thought. It is actually located in Hillsboro, North Dakota. My mistake.

However, the conclusion of my price comparison, that American farmers just across the border are receiving higher prices than Canadian ones still stands even when using the CWB’s own price findings of $5.73/ bushel Canadian at Bottineau on June 14, 2007. On the same day, the CWB fixed price contract only returned $5.10/ bushel back to the average Manitoba Farmer while the pool price predicted a return of $4.22/ bushel. That projected pool price has since risen to $4.70/ bushel. So instead of losing a full dollar a bushel as I concluded, there is, according to CWB figures, only 63 cents being left on the table when compared to its fixed price contract and $1.03 when compared to its latest pool price projection. This is still a significant loss to farmers and the prairie economy, especially when one considers that most farmers just take the pool price.

The charge that my analysis is overly simplistic is not a compelling argument. Yes, it is a simple price comparison but simplicity in and of itself does not invalidate the argument. At the end of the day it is a very simple question, ‘does the CWB get Canadian farmers a better return than they would be able to get on their own?’ When you compare farm gate returns the answer is no, and a very simple comparison is all that is required to answer the question. The CWB, like most government bureaucracies, has always been a worshiper at the altar of complexity, as anyone who has tried to understand their various pricing options can readily attest. The CWB prefers studies that they themselves pay for, done with unverifiable secret data sets, and convoluted econometric models that do not even attempt to get at the farm gate return. In short, they muddy the waters to make the analysis appear deep, when in reality there is no need to – straightforward price comparisons over a period of time is really where the truth lies.

Arason also erroneously claims that, “Canadian farmers are often able to do better than the posted charges, but U.S. prices are often unattainable unless your grain is very, very good”. This is incorrect. Farmers on both sides of the border regularly receive the published price for the posted grade – if anything they can sometimes negotiate better than the posted price. Besides which, Canadian grain is often “very, very good”. The Wheat Board itself often boasts about selling the ‘highest quality grain in the world’ simply because Canadian farmers produce some of the highest quality grain in the world. It is hard to believe that CWB President Mr. Arason has changed his mind on that.

Mr. Arason also dismisses “a single comparison (one type of wheat on one day at one point in North Dakota versus one point in Manitoba) as representative of the experience across the entirety of Western Canada every day of the year” as overly simplistic. All right then, let us look at some other prices and different wheat’s in different locations to see if that is the case.

On July 11 the price for milling durum at Bottineau Farmers Elevator (in Bottineau) was $8.10 Canadian. The CWB fixed price contract would net a Manitoba farmer $5.02 and the projected pool return of $5.51 for 1 CWAD 14.5 protein. This leaves anywhere from $2.59- 3.08 per bushel on the table for high-grade durum.

Footnote- CWB fixed price has been adjusted higher to account for the higher than reference grade. Since the initial payments have yet to be released, which is normally what the grade spreads are based on, the adjustment used is the difference between grades listed in the CWB’s latest June 28 pool return outlook and should be comparable. The standard Manitoba deduction of $43.74 for 2006 was also used.

For winter wheat, the Montana Wheat and Barley Commission indicates the average price was $5.11 Canadian on July 2 for 11 % protein in north eastern Montana. In Saskatchewan, the CWB fixed price contract Herefor 11.5 % protein winter wheat was $4.43 and the pool price was $4.19. Leaving 68 to 92 cents on the table.

Then if we look at 14% protein Dark Northern Spring Wheat the worst price obtainable in north Central Montanaon June 28 was $6.13 Canadian while the CWB fixed price contract was $5.33 and the pool price was $4.86 for 1 CWRS 13.5 in Alberta. So the loss to our farmers there, at a minimum was in the range of 80 cents to $1.27.

Even when we compare average and worst prices offered in the northern US to the best the CWB has to offer across the prairies they come up short.

I agree with Mr. Arason that single day comparisons do not by themselves demonstrate that returns provided by the CWB are sub-par. However when the returns provided by the CWB are consistently below open market returns, as I believe they are, then I can’t see how anyone can argue that there’s a justifiable case for denying farmers the freedom to market their own grain to the buyer of their choice. The Frontier Centre intends to continue documenting this difference and bringing the evidence forward.