CWB: The end of a monopoly?

ALTONA, Manitoba - Melvin Penner seems ready for most things, but he's especially ready for the end of a monopoly on barley and wheat trading by the Canadian Wheat Board.

ALTONA, Manitoba - Melvin Penner seems ready for most things, but he's especially ready for the end of a monopoly on barley and wheat trading by the Canadian Wheat Board.

"I think I'm fully prepared for it," Penner says.

"I would feel real comfortable. I have enough contacts in the U.S. where I would be the first one there. I'm ready to rock 'n' roll."

Penner, 48, is among a rising tide of Canadian farmers who would welcome change in the venerable board.

As of Aug. 1, the CWB is scheduled to lose its monopoly on barley, but there are political challenges.


"I'm thinking it'll happen," Penner says.

Penner isn't very politically active on these things.

He has a business to run, and he's generally too busy for the meetings and political discussions that drive the changes in "The Board."

He graduated from high school in 1976 and went right into farming, but with seminar-type education since. Initially, he farmed with a brother, Hank, but now he farms with Hank's son, Kris.

When Melvin started farming, the farm amounted to about 1,000 acres. It increased to 3,000 acres in the mid-1980s, including 400 acres of sugar beets. Beets ended in the mid-1990s, and the Penners shifted to other crops. And he expanded.

Today, the Penners raise about 3,000 acres of corn, 5,000 acres of edible beans, 2,000 acres of sunflowers, as well as some soybeans and a little wheat and oats. In 2003, acquired a neighbor's 2,750-head hog farrowing operation and sent weanlings to Iowa, where they lease finishing operations.

"Most of these things we can market at our own time, when we want to," he says. "We can forward contract and use all kinds of marketing options, and it gives us more flexibility. I'm not saying I can do a better job every time, but if 'John' doesn't want to buy it, then 'Peter,' or 'Paul' - somebody - has a market for it when I want to sell it. I don't have to make up my mind six months in advance."

"We can grow decent corn, as long as American corn stays out. We do grow some soybeans, but not a whole lot. Barley? I haven't grown that for years."


Penner grows wheat, but it's largely for rotation purposes.

"We can't make any money at it. There's the odd year when you get a price spike, but you can make more on corn, edible beans, sunflower, canola. Even hemp," of which he grows 400 to 500 acres.

He says he'd raise wheat as a main crop if he were in a high-

equity position because it's less difficult to grow.

"I'm in the game to make a living and have some money," he says. "If you're not in a percent equity position, you won't make it growing wheat."

Who does

the thinking?

Penner says that with the CWB as the only marketing outlet for export wheat, farmers "don't have to think at all" when it comes to marketing. Instead of using the conventional futures tools in other markets, the CWB calls the tune.


There are four options, Penner says.

Pooling: Here, the board gives you a base price (initial price). It sells the wheat and takes off fees for administration and other costs.

"If there's any money at the end of the day, it's divvied up on a per-ton basis," Penner says. The hauling is done based on a "call" of a percentage of the contract amount.

"Nobody knows how much they'll call at a given time or if they'll take all of it," Penner says.

Suppose the farmer offers 1,000 tons for the pooling option.

"They might call up 20 percent right away, and then, come December, another 20 percent," Penner says. "Or maybe not."

Some years, the base price is the whole thing, but if the market rises and the board hasn't sold much wheat, you might get an interim or final payment. And if the board doesn't call for the entire 1,000 tons? Then you can carry it over until the next year, but that hasn't been an issue lately.

Daily price: Here, the board offers a sort of North American price relatively close to a domestic market. This is figured from an average price within several hundred miles, for what milling wheat would bring.

"They take their fees and costs off that," he says.

Fixed price: This time, the board offers a base price, calculated on a formula based on the Minneapolis wheat price. It's a complicated formula that includes transportation and currency exchange, as well as ad ministration.

"It's not the elevation or transportation because that comes off the deduction when you haul it into the elevator," Penner says. "I use that one a fair bit," Penner says, explaining he'll probably lock in some wheat with the mid-June price running up. To be fair to the board, Penner says it handles the puts, calls and margins and maintenance margins for which farmers otherwise would need to be responsible.

Basis contract: Here, the farmer locks in the price based on futures-first or basis-first option.

All of these options are open for only so many tons for a certain timeframe.

Neighbor vs. neighbor

Penner's isn't the only opinion on the topic.

Find a group of farmers together in a local cafe, and there are widely divergent opinions on the board and whether it should lose its monopoly on wheat and barley. As with religion, there's little meaningful debate and the topic is too hot to handle.

"Pro-board" farmers in one klatch pointed a visitor to Steve Siemens, a farmer west and north of town. He and a brother crop 1,900 acres of grains, oilseeds and pulse crops. The Siemenses grew about 35,000 bushels of milling wheat last year - not a big part of the operation.

Siemens says he's mostly stayed out of the debate, except to write a letter to the editor in response to an anti-board letter that likened the CWB to a "Communist-run" organization. He's a member of the executive board of Keystone Agricultural Producers (something akin to the Farm Bureau in the U.S.), but emphasizes he speaks only for himself on the board issues.

"When I was younger, my impression was that basically the Wheat Board was a price-averaging organization," Siemens says. "But I became an advocate because I believe a premium is being achieved by having that organization have a 'single-desk' sale."

Siemen says farmers tend to see the board as a political entity and notes that during the past two or three decades, there has been a growing, general cynicism over government entities.

Siemens thinks the board is underappreciated for its role in developing the product for its product development and marketing. He says he thinks that even the larger farms can't match the board's marketing expertise. Taking away the marketing monopoly would be like "a kitten playing with a ball of string." It will have an effect on the elevators and grading system.

The Conservative government has been impressive on one level because it's followed through on campaign promises. But it has used "ruthless, almost bullying tactics" of appointing board members that have a clear ideological position against the CWB's single-desk sales. The board fired a chief executive that had defended the single desk.

"I think it was shocking," Siemens says. "The Conservatives are a minority government. That's very important. They're a minority government that has decided to act as if they have a majority."

The decision to go ahead on barley could put the CWB in a bad financial position with some of its early sales of barley, and farmers ultimately would pay the price.

Siemens says he has friends in the U.S. who wonder why there isn't more coverage of the issue in the U.S. media.

"The U.S. grain industry is keeping this low-key," Siemens says. "They're winning, so they're going to keep quiet."

He says private grain trade will be the piece that will benefit and "that has always come at the expense of farmers." The larger producers, with the wherewithal to ship grain wherever they want, will tend to appreciate the change. Smaller producers aren't in a position to do that.

Barely growing barley

Barley isn't a big deal for Penner these days. He hasn't even tried growing malting barley recently because of the difficulty making the grade. There's always the domestic feed market, which is open. But farmers as far south as he is can be better off growing corn.

Even for domestic maltsters, the farmers have had to go through the board, Penner says.

"Now it's my understanding that I can make deals with Budweiser or any of the other maltsters," Penner says of the changes after Aug. 1. "We can all do that now, if the board gets out of the way."

He deals with perhaps 30 different buyers of pinto beans, maybe 20 on sunflowers. It's much more rewarding than the small grains business, where farmers are told when to haul and where.

"It's worth my while to follow the market closely enough," Penner says. "I feel I know what's going on in the market, and theoretically, I should beat the 'pool' most of the time."

As he deals with his crops, Penner uses a number of marketing consultants, including Joe Nelson of Progressive Ag Marketing in Fargo, N.D. Nelson, also an insurance agent, has been traveling to the Altona area of Manitoba every once in awhile to consult with a marketing club in which Penner is involved.

"He's not my only guy, but he's one tool in the toolbox," Penner says of Nelson. "He's in the loop. He follows the market for a living, and I've got other things to do besides follow the markets."

Penner isn't into predicting, but he says that when the media announced that the CWB would be losing the barley monopoly as of Aug. 1, the barley market went up $20 a ton.

"I don't understand why the American media, the public or farmers wanted to get rid of" the board, he says.

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