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Open market, but not-so-open information

Five years post-CWB, farmers are still waiting for information that puts them on a more even position with the companies buying their grain

When the wheat board monopoly ended, so did clearance associations reporting how much grain was being loaded to which vessels arriving or waiting at the West Coast and Thunder Bay.

The characters in the play “Waiting for Godot” and Prairie grain market transparency apparently have something in common — waiting for something that never arrives.

It’s been five years since the end of the Canadian Wheat Board monopoly, when one of the goals was to expose Prairie wheat and barley growers to the mechanisms of the marketplace — who’s buying, what are they buying, and at what price? Unlike in the U.S., where at least some of that information is reported, farmers here are still waiting.

And how well is the transportation system working, since that influences the basis. Traditionally, basis is viewed as port price minus the country price, but not in today’s Western Canada, where most companies are reporting it as a positive number — the difference between the Minneapolis wheat future in U.S. dollars minus the Prairie cash price in loonies.

Some grain firms provide a basis that incorporates the Canadian dollar, but others don’t, notes David Drozd, president of AgChieve.

Basis is traditionally the negative difference between port and country price. But most Canadian grain companies reporting data to the Alberta Wheat Commission’s PDQ site calculate the basis as the difference between the U.S. dollar future and the Canadian dollar cash, making it appear as a positive number. photo: Supplied

“Grain companies do offer confusing basis levels,” adds Brennan Turner president/CEO of FarmLead. “Simply put, not all basis is quoted the same.”

“With an 80-cent dollar, I think the transparency is a little more blurred,” says Weyburn-area farmer Mark Bratrud. “It’s harder for farmers to separate futures from basis and hedge them separately. Many farmers have just become cash price marketers.”

LeftField Commodity Research owner Chuck Penner believes farmers are probably discouraged from using basis contracts.

Drozd advises that before agreeing to a basis contract, farmers should first ascertain the wheat futures and Canadian dollar outlooks, and target a futures price before the basis contract expires.

“Without the answers to these, a producer is committing tonnage to a basis contract at their own peril,” he says.

But what’s the real price?

A step toward providing basis clarification occurred in September 2015 when the Alberta Wheat Commission launched the free Price & Data Quotes (PDQ) website.

Users can change the basis calculation using the toggle button at the top of the basis widget that shows a basis in Canadian dollars after converting the futures using current exchange rates, explains John De Pape, president of Farmers Advanced Risk Management Co., the firm contracted to build PDQ.

But FarmLink senior market analyst Neil Townsend points out there’s a gap between the posted prices that participating companies supply, and their de facto traded prices. And posted prices can be quite a bit below the actual market, he explains.

“I don’t think it’s a great tool for price discovery because people in the trade and elsewhere just won’t think there’s enough unfiltered information flowing into there,” Townsend says.

Canadian grain companies closely guard their prices, he adds. More than likely they need to be called directly, and they still won’t give up their information without asking questions.

“Price transparency in Canada is quite weak,” says Townsend.

“When I compare price transparency in other countries like Australia and the U.S., I find grain buyers here to be much more closed,” concurs LeftField’s Penner.

PDQ is a good idea in theory, but it’s far from an authoritative one-stop shop, as companies like FarmLink, AgChieve and LeftField track their own cash prices and basis levels.

“There are plenty of other sources out there reporting cash bids, including all three provincial agriculture departments,” says Penner. “There are also a number of other paid sources for that information.”

But whatever the source, they only provide indications at a certain point in time, and ultimately farmers will need to contact buyers in order to negotiate the best price, Penner says.

“Prices posted publicly are usually the lowest available, and farmers shopping their grain around will be able to get a better deal,” Penner says.

More crops

PDQ initially gave regional Prairie prices for three wheat classes, as well as canola and yellow peas, with additional crop values promised to come sometime thereafter. But none have been added since the site’s 2015 launch.

“Additional crops require a different collection approach,” says De Pape. “Additionally, it makes sense for other stakeholder groups beyond the Alberta Wheat Commission to be involved to expand the crop offering to other crops in other provinces.

“That is currently being explored.”

FarmLead’s Turner guesses more crops haven’t been added simply because buyers would prefer not to add price transparency.

“To get five crops on PDQ I think was probably a battle for all those involved, and really only happened because the government mandated it,” Turner says.

The then Conservative government announced a contribution of $742,725 to create what became PDQ, and Penner thinks another round of funding might be needed to add more information.

“Before that happens, though, I would hope there would be some measurements of actual use,” he says.

Turner agrees the federal government needs to step up in order for PDQ to add crops, but he expects a pushback, not only from companies that don’t favour greater transparency, but also from advisory firms that have built businesses on selling pricing data and wouldn’t support the government mandating it be given away for free.

Prairie info lags behind U.S.

Every country has its own strengths and weaknesses when it comes to market information availability, but Canada is experiencing a number of shortfalls versus its competitors that aren’t being addressed.

The U.S. is far ahead in reporting prices and export sales, says Penner. In the U.S., grain exporters are required to report all sales every week, and to report daily if sales are more than 100,000 tonnes.

When the wheat board ended, so did the clearance associations that reported grain vessel lineups and loading schedules at the West Coast and Thunder Bay. Penner says that took away more transparency.

“Export commitments are indeed one piece we are missing here,” agrees De Pape, who doubts Canadian exporters will voluntarily provide similar data to the U.S. data. “It will likely require a mandate from the feds.”

Penner adds, however, that the U.S. is missing the commercial stocks and movement data that the Canadian Grain Commission provides in its Grain Statistics Weekly.

“The CGC’s Grain Stats Weekly isn’t perfect, but it provides a lot of detailed information not available in other countries that can be used to help interpret what’s happening in the market,” says Penner.

Penner believes Australia has the most comprehensive price reporting, adding it’s not from a government source but rather the private trade. But other information there, especially exports, is more difficult to access.

The supply side

If Ottawa is going to step up, Townsend says, it should start by improving its field crop reporting data in order to level the playing field of information and make StatsCan more effective, and hiring experts to go out into fields to survey crops is a good place to begin. Phone survey data collection has passed its usefulness.

Says Townsend: “We need to have more timely information that we can trust more.”

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Richard Kamchen

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