Last spring, the newly elected government in Canadaannounced its intention to do away with the Canadian Wheat Board (CWB). Even though the CWB operates as a marketing system for different commodities (wheat and barley) in a different country, this will impact corn and soybean markets. I’ll use the next two columns to tackle this question, starting with a little background and some reflections on my own dealings with the CWB.
The CWB was established in 1935, during the Great Depression when grain prices were rock bottom. As the sole buyer of western Canadian wheat and barley, its main function is operating a pricing pool designed to provide farmers with equal prices.
It also controls wheat and barley sales and distribution – allocating rail cars and determining which elevators will move what grain and when. This tight control has allowed the CWB to burnish its image as the highest-quality supplier of wheat in the world market.
During the 1980s, I purchased a modest amount of Canadian wheat for a mill in Buffalo, NY. I had a number of opportunities to work with the CWB. At that time, importing Canadian wheat was a delicate political topic, even though a mill located on the Great Lakes could be served equally well from the Dakota or Canadian prairie. In fact, the movement of Canadian wheat into the Buffalo market was already a century-long tradition.
It was about the same time that the CWB was empowered to use the futures market to hedge price risks. The best fit for CWB hedging activities was the spring wheat market at the Minneapolis Grain Exchange, where I traded in the pit. I recall a CWB official casually asking me, “How should the Wheat Board go about hedging the Canadian wheat crop?” Good question. (Thinking about its ownership position of 1 billion bushels, I said, “Please don’t use a market order.”)
With the CWB and its “single desk” operation, you would think that buying Canadian wheat was simple. Not for me. The back and forth negotiating process often took several weeks. Compare that to buying U.S. wheat from a ship-loading elevator operating out of Duluth. In 10 minutes, I could negotiate the price, quality and delivery on more than 1 million bushels of wheat, with half of that time spent on last night’s ballgame.
But CWB did offer quality. You negotiated for a minimum level of wheat protein and the CWB inevitably delivered more than the minimum. And while the U.S. wheat market was trading a standard 2% dockage, the CWB sold wheat that was cleaned of dockage. The higher protein and cleaned wheat were offered for “free.” Of course, just because it didn’t cost me, or the CWB, did not mean it was free. Whether they knew it or not, Canadian producers picked up the tab.
The North American grain market will change without the CWB. It seems that the greatest change would be reserved for the western Canadian farmer who benefited from the price pool. But I think your average Canadian farmer is ready for the change. After all, they already market crops not controlled by the CWB. This includes canola, and canola-planted acres can exceed wheat in some western provinces.
I will explore more changes in the next column.