Grain farmers fear growing pains
Category: Grains
(The Calgary Herald) – A wary Canadian grain industry will ease cautiously into signing forward-price contracts for the prized 2012 wheat and barley crops, as legal entanglements over Ottawa’s plan to end the wheat board’s marketing monopoly hamper any swift moves into an open market.
A Conservative government bill ends the Canadian Wheat Board’s monopoly on western wheat and barley sales next August. The change will shake up the industry, creating an open market and leaving the CWB a smaller, optional grain buyer.
Once the legislation became law in mid-December, handlers and farmers were able to immediately sign forward-price contracts for the 2012 harvest and forge deals to supply Canadian and foreign buyers such as millers and maltsters.
But while that race to secure Canada’s grain supplies was shaping up as a sprint, the latest court battle over the wheat board’s fate now has all players weighing the risks.
“People are seeking to understand this better now, everywhere,” said Wade Sobkowich, executive director of the Western Grain Elevators Association.
He expects some grain handlers to sign forward contracts, despite the risks, but also said they well remember the pain in earlier years of acting too soon.
“People have learned they need to proceed with caution.”
A Federal Court judge ruled in early December that Agriculture Minister Gerry Ritz breached existing law by not consulting the wheat board or holding a farmer vote beforehand. But he did not order the new legislation to be killed and the government has appealed the ruling.
As well, a request by former wheat board directors for an interim injunction to keep the bill from being implemented was rejected, although the judge will hear further arguments in mid-January.
The latest bid to end the CWB’s monopoly on sales of wheat and barley for milling or export is similar to two failed past moves by Conservative governments to open the market.
In 1993, a Federal Court judge ruled Ottawa overstepped its powers by removing part of the CWB’s barley monopoly by regulation.
Fourteen years later, in March 2007, after most farmers voted against keeping the single-desk system for barley, then-Agriculture Minister Chuck Strahl said he would end the CWB’s barley monopoly by changing regulations.
But several months after that, a Federal Court again blocked such a move without a vote in Parliament. The vote never took place and the monopoly lived on.
In both cases, grain handlers were left to pay penalties to customers for contracts they could not fulfil, Sobkowich said.
In a “demand-pull” grain system, companies such as Viterra, Cargill and Richardson International book sales to customers before agreeing to buy farmers’ grain.
If they can’t deliver on their commitments because the Canadian Wheat Board’s monopoly survives, they would pay penalties to exporters or domestic millers such as Archer Daniels Midland and P&H Milling that need to assure supplies, Sobkowich said.
One Canadian milling executive said the domestic industry is likely to wait through January before buying much wheat.
“I’m not going to think about this for four to five weeks and, after that, maybe it’s a thing where the industry moves on (and buys wheat). You can’t just sit here.”
It’s hard to predict how eager Japan, the biggest buyer of top-quality Canadian wheat, will be to lock up supplies in the open market, said Jeffrey Smyth of Toronto-based Database Analysts, a consultant to Japanese food and milling companies.
A lack of communication between Canada and Japanese customers about how the changes to the wheat board will come about hasn’t helped confidence, Smyth said.
“I think that customers are really in the dark about what’s going to happen.”
Farmers usually start sketching out seeding plans early in the new year, but with so much confusion about the wheat board, some might avoid planting wheat or barley this spring, said grower Norm Hall, president of the Agricultural Producers Association of Saskatchewan.
Farmers might also be hesitant to sign forward con-tracts with grain handlers or hedge their price risk on new grain futures contracts being launched Jan. 23 by ICE Futures Canada, Hall said.
“It’s all going to depend on the court case,” he said from Saskatoon.
“If the (government) appeal is settled quickly, guys will be jumping on the bandwagon because guys need to cover risk on their farms.”
Matt Sawyer, an Acme-area farmer and chair of the Alberta Barley Commission, said he doesn’t believe the pending court decision will significantly impact who plants what.
“It’s full freedom going forward,” he said. “There are prices and contracts offering going forward already.
“I’m taking fertilizer home right now. . . . I pick up barley seed next week. We made a plan and we’re going ahead
with it. I’m excited about discussions with different malting companies.”
Sawyer said farmers will have to watch the price spread between contracts they sign based on a certain quality, and what will happen if they can’t deliver that quality.
“To my mind the weather-related risk is going to be an issue, but it always is,” he added.
“Farmers will have to be aware of the contracts they’re signing.”
Ritz has said farmers should continue to plan for next year on the assumption that the monopoly will end as planned.
To become law, the legislation needs royal assent from the governor general.
The Wheat Board and its supporters may then ask for a court injunction to stop the government from implementing the bill, once it passes, al-lowing the court proceedings to run their course.
