A Canadian grain growers’ group wants to see a review of the Canadian Wheat Board’s risk management strategies, while a second Prairie group urges Ottawa to put the board’s expenses in check.
The Ottawa-based Grain Growers of Canada on Friday called for an independent review of the last three years of risk management strategies at the CWB.
The CWB’s annual report shows “substantial losses of nearly $90 million” in its producer payment options (PPO) programming, GGC president and Carstairs, Alta. grain grower Doug Robertson said in a release.
“These losses amounted to $89.5 million, or almost $20 per tonne, and come on top of $39.9 million in losses on these pricing options in the previous year,” the Western Canadian Wheat Growers Association, a GGC member group, said in a separate release Thursday.
The $89.5 million loss was charged against the CWB’s contingency fund, which now rests with a negative balance of $28.9 million, the WCWGA said.
“It appears as if the CWB was asleep at the switch and got caught on the wrong side of the market,” WCWGA vice-president Rolf Penner, a Morris, Man. grain grower, said in his group’s release.
“We certainly recognize that last year was a turbulent time for grain prices, but this is now the third consecutive year of losses and so one cannot simply blame market conditions,” Robertson said.
Last year in the private sector, he said, grain companies were “much more careful” in matching their buying to actual sales. Some, he said, had exited the markets due to the high level of uncertainty.
“In other cases the grain industry appears to have had far better market intelligence on yields in other countries, like (those in the former) Soviet Union, than what the CWB was able to ascertain.”
Out of pocket
“For an organization that claims to hold more than 20 per cent of the international market in wheat, one would hope it would be more on top of the situation in a timely basis,” Robertson said. “As a result, we will likely see a wider basis over the next several years at the wheat board, which will take money out of producers’ pockets to pay for these losses.”
The WCWGA also said it fears that pricing options will be “unattractive” in coming years as the CWB looks to recoup losses of the past two years.
The CWB says it intends to pay back the money to its pool accounts, the WCWGA said, but added that the group of farmers in the various pool accounts — and the amount of grain they deliver to the pools — can “vary substantially” from year to year.
“The role of the CWB is not to arbitrarily redistribute wealth among farmers,” said WCWGA president Kevin Bender, who farms at Bentley, Alta. “The Wheat Growers have repeatedly asked the CWB to ensure there is no cross-subsidization between the pool accounts and the pricing programs.”
“Farmers do want a choice of pricing tools within the CWB,” GGC’s Robertson said, “so it is critical to identify the failures in risk management and then identify solutions for the future.”
The $29.8 million contingency fund deficit stems from the “extreme volatility” of futures and basis values, plus a forward inverse in market values from December 2007 to March 2008, which created risk-management issues for the PPOs, the CWB said when it released its annual report Wednesday.
The “often-poor” correlations between U.S. futures markets and prices in other markets into which the CWB sells, when coupled with volatile basis levels, were “particularly challenging,” the board said.
“In these extraordinary market conditions, many grain companies chose to withdraw some of their pricing options, but we believed it was important to honour our commitment to Prairie farmers by continuing to provide these programs, ” CWB chairman Larry Hill, a Swift Current, Sask. farmer, said in the board’s release Wednesday.
The WCWGA, a Saskatoon-based Prairie farmers’ group that has long advocated deregulation of the CWB’s single marketing desk for Prairie wheat, also described itself Thursday as “alarmed about the continuing lack of cost control at the CWB.”
The group cited an external study that said the CWB’s administrative costs have risen an average of 7.2 per cent a year for the past 20 years, and rose another five per cent in its latest annual report.
The report shows the CWB’s administrative expenses for the last crop year at $75.3 million, up from $71.8 million the previous year. The WCWGA said it has written federal Agriculture Minister Gerry Ritz with a request to “rein in the out-of-control spending at the CWB.”