Latest articles

Grain marketing changes over time

After all of the changes over the past decades, do farmers have more price control?

When I started my first job at a farmer-owned co-op grain elevator 36 years ago, the only way a producer could get a price was by calling or stopping by the local elevator to see the daily bids. These only included grains like canola, rye and flax, as all wheats, barley and oats were under the Canadian Wheat Board pool pricing programs.

Every morning and afternoon at the elevator, where we had no computer, we would receive a fax price sheet from the head office and then post those prices for farmers.

This was price discovery and transparency for those times.

The grain companies made the sales, set the basis and then determined the price that was sent out to the elevators to be listed on the price board twice a day.

You had no way of knowing who bought the grain, what the quality specs were, or what the sale price was.

If you were dealing with a co-op, and if they made money that year, you would receive a dividend payment. If you delivered to a private grain company there was no dividend payment.

Flash forward to 2013 and what had changed?

  • The CWB had been dismantled.
  • Grain company mergers had swallowed up all of the farmer-owned co-ops and we were left with either private companies or shareholder-owned corporations.
  • New futures contracts were created for durum and CWRS wheat on the ICE exchange to give producers the opportunity to manage their own marketing strategies using futures contracts.
  • Technology allowed for easier price information access from multiple buyers.

After the CWB was dismantled, farmers had access to more market pricing, but did you really have more ability to price when and how you wanted? Dismantling the CWB helped the grain industry —millions of dollars have been invested to build more inland and port terminal facilities. From the producers’ perspective this has increased the number of buyers, which should be a good thing. But does more buyers really mean better prices? In the aggressive business of world grain exporting how can these companies justify paying for these massive multi-million dollar facilities?

Competitor countries continue to ramp up production at record pace, and freight costs continue to rise — putting Canadian grains at a disadvantage selling into the major world markets. The only way to compete is to drop our asking price, and the only one in the value chain (from farm to end user) who will get paid less will be the grower.

Grain companies make sales and determine what they need to cover costs and make a profit (basis). From that simple equation they come up with a price offer that they put out to producers. The process really hasn’t changed much in the past 36 years, has it!

You the may be able to find out who bought the grain and or at what price, but that information in not readily available. When it comes to selling and pricing grains destined for export, nothing has really improved much over the past 36 years!

Grain companies profit more from handling grain than from selling grain. If they control all aspects of pricing, then building these new facilities is a good business move. They should be able to make a decent return on investment as set their own prices.

So is having more elevators going to improve the price you get for your grain? Maybe.

There are no longer any co-op grain companies left. Farmers have lost a connection to the value chain where they might hope to extract some extra profit. Dividends paid to member owners over the years were substantial; now those dollars remain with grain companies and are paid out to shareholders or company owners. I am not convinced that this change has been a positive for farmers.

A positive change from the dismantling of the CWB was the creation of the ICE exchange futures contracts for trading durum and high protein wheat. These contracts were great tools for producers and industry. They gave producers control of when they priced grain, and the ability to take advantage of futures rallies.

Flash forward to 2017 and these ICE contracts, along with the Western barley contract, have been delisted from the exchange due to limited or no trading over a three-year period. An unfortunate loss of another important pricing tool.

Advancements in technology have allowed for the creation of online marketing platforms that would give farmers immediate access to cash price bids from multiple buyers on their cellphones. Farmlead and Ag Exchange Group are two that come to mind. This is cash price transparency at its best.

These are a good start toward putting more control over pricing conditions back in the hands of producers. It’s about time. I haven’t seen many changes made in the industry over the past 36 years that have been very beneficial to producers.

About the author

Columnist

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

explore

Stories from our other publications

Comments