After 75-plus years of only marketing wheat through the single desk of the Canadian Wheat Board, western Canadian farmers have now had a year to get used selling the crop on an open market.
Legislation passed by the Conservative government ended the single desk as of August 1, 2012. The rebranded CWB remains in operation as a government-controlled grain merchant with a five-year plan for privatization, but the CWB pools are now only one option among many for farmers with wheat to sell.
While there were some growing pains, “if you didn’t know about the change, you would never have noticed: it was that seamless,” said John DePape, of Farmers Advanced Risk Management Company, on the year-old open market for wheat.
“It was way easier than we anticipated,” added Reid Fenton, of BLB Grain Group in Alberta, noting that the ability to utilize risk management tools for wheat apart from the pooling system was being taken advantage of by most of his customers.
However, “sellers need to be aware of the terms that buyers are offering, because everyone has different base grades and discounts or spread,” said Fenton adding that “it’s seller beware and you have to make sure you’re comparing apples to apples.”
Over the past year, people found out that wheat is not as simple to market as canola, given the number of classes, protein grades, etc., said DePape. The basis will also move around more on wheat compared to canola, as Canadian prices are largely based off of the Minneapolis futures which means the foreign exchange component is in the basis.
One challenge is price information, or lack-thereof, said DePape giving the example of the readily available US export sales data which has no equivalent in Canada. The former CWB had served to level the playing field between the large traders and the smaller grain companies, said DePape. He said the current market would function better with mandatory export sales reporting, as the smaller players would then have a better sense of what was going on and could adjust their prices accordingly.
The daily vessel lineup of boats coming to load grain at Canadian ports that had been provided by the Canada Ports Clearance Association is also no longer available after the group disbanded following the end of the single desk. With the culture of the grain trade being somewhat private, “we need more information, not less,” said DePape.
Brenda Tjaden Lepp, of FarmLink Marketing Solutions, agreed that the lack of consistent information was a challenge under the new open market.
“My biggest complaint is that the grain companies don’t have consistent base grades on their cash grain contracts,” said Tjaden Lepp. With each company basing their contracts on different grade spreads, benchmarks, and terms and conditions, “it is enormously complex for the average farmer,” she said adding that “it would be in everyone’s best interest if (the grain companies) could all come together and agree.”
ICE Futures Canada did introduce milling wheat and durum futures contracts following consultations with the industry, but those markets have yet to see any significant interest.
Tjaden Lepp said better supply/demand data from the government would also be beneficial in making the open market work. She questioned some of the rhetoric coming out of the government praising a free and transparent open market with the one hand, while taking funding away from Agriculture Canada and Statistics Canada with the other. “I’m all for this open market, but there are some structural pieces missing that are required to make decisions.”