CWB in the New Marketing Era
CWB began the new marketing era on August 1 with a fundamentally different business model, but its goal remains the same—to provide farmers with additional value in marketing their grain.
The federal government provided the “new” CWB with some important tools to get started. We have an adequate capital base, and the borrowing and payment guarantees that finance our operations have continued. Federal government backing ensures CWB has a triple-A credit rating. Without that, our cost of borrowing would have been high, making it very difficult to even get off the ground. The government also created a transition period. Instead of being privatized right from the start, we have up to five years to become a private company.
At CWB, we have all worked very hard to develop a viable business model that delivers value to farmers. We established two very important things in the months leading up to the start of the open market. First, we developed a set of contract programs that provide solid value for farmers. Second, we entered into handling agreements with all grain companies that own primary handling facilities across Western Canada and we obtained access to the grain terminals at port. There was some skepticism about whether we would be able to reach workable agreements with all of the companies, but we did it.
Our pool contracts closed to farmer sign-up on October 31, but we continue to offer competitive cash contracts all year round: Futures First, Basis First and Deferred Delivery. Farmers who choose CWB cash contracts get the flexibility of delivering wherever they choose. They are also able to take advantage of CWB’s expert marketing staff, can be confident of payment, and have the assurance of marketing their grain through a company with a strong farmer focus.
As we assess the factors that have influenced farmers’ grain-marketing decisions this fall, we can identify both opportunities and challenges for CWB. On the positive side, we had a good wheat crop in Western Canada. For a volume-related business like ours, that’s important.
We also had an early harvest. Because we are offering new programs in a new environment, it took farmers a while to decide how they wanted to market their crops. Most farmers preferred to wait until their crops were in the bin before they would even consider signing contracts. So we were fortunate that an early harvest gave many farmers time to do that before the pool sign-up deadlines.
One of the unique things about CWB pool contracts is that farmers can deliver against them anywhere they want. If they sign a contract with a particular grain company, they can only deliver to that grain company. If they sign a CWB contract, they can deliver to whatever company they choose. In many cases, they will choose the company that gives them the best deal on handling deductions. That’s a very important feature of our contracts and sets us apart from the competition.
There were also some things working against us this year. High prices at harvest can reduce interest in pooling. When cash prices are high, it increases some farmers’ interest in selling in the cash market versus entering a pool. However, no one knows if harvest prices are going to be the best of the year. Prices may stay high or go higher, and farmers who pool will benefit from that. We made sure with the pools that we didn’t start selling too early, so the pools have captured these very high prices, meaning pool returns will be good.
Another issue is that everything’s new. The market environment is new, our programs are new. They are not just new to farmers, they are new to elevator company staff and to everyone in the system. It took time for all of the information to roll out to all of the country elevator staff and to farmers, which created some delays in farmer contract sign-up.
Overall, however, there has been strong interest in pooling among farmers, with sign-up for the Early Delivery Pool exceeding our expectations for wheat. At press time (early October), prospects for the Harvest Pool were looking very strong, with most farmers indicating an interest in marketing with CWB for at least part of their total production.
As we forge ahead in the new grain-marketing era, we remain focused on farmers. They are the reason for our existence. They will ultimately determine the level of our success. Together, we can ensure a bright future for a strong and diverse western Canadian grain industry.
Ian White, president and CEO, Canadian Wheat Board.
