One of the most frustrating things of growing older is the deterioration of my eyesight. At the age of approximately 48, lots of us farmers start wearing glasses for reading. It is that way because we can’t see like we used to. One the most frustrating things I find on the farm is trying to fix things without glasses. Everything looks blurry, out of focus not transparent whatsoever. Thank God for optometrists. I couldn’t farm without them.
In many ways, sometimes I think when I look at grain prices it’s the same as fixing things without glasses. Understanding how the price of grain is determined is often not transparent. It is often hard to understand and even when you understand, it can be an awful difficult process getting there. If the price of corn is $4, it should be $4. However if the price of corn is $4 and you don’t understand why it is $4 that’s a problem. Price discovery and transparency for me as a farmer can be frustrating. Across Canada is has become a huge problem.
What you say? Isn’t the price of grain the price of grain? Do you mean to tell me that the basis values in front of me aren’t necessarily ethical and forthright? When I count sheep are there 10 when there really is 11? Or is it simply a question about transparency? Is our agricultural marketplace for grains transparent enough for everybody to see where the price came from?
I’m not talking about unethical behavior here. I’m simply talking about agricultural market structure, which sets up the scenario where price discovery is not transparent. In other words, it’s very difficult to understand why the price being offered for grains is what it is. Understanding that lack of transparency at times can be very frustrating for all farmers involved.
Case in point is the current situation in Western Canada for hard red spring wheat. Last year in Western Canada we had a tremendous crop with approximately 30% more than the past 10-year average. There is wheat everywhere and despite record exports out of our ports the interior basis for wheat was averaging $1.89 under the nearby futures last week with an extreme of $2.34 under. At the same time there were many locations in Western Canada where there was no bid. In other words the basis could not be set low enough without it becoming a major embarrassment to everybody. From an Ontario perspective, the prospect of no bid for grain was so unusual. The question is why? How transparent is the explanation on getting there?
At the same time last week there were railcars of grain being bought at $3 and $4 bushel premiums at the Minneapolis exchange. Four hours north of the border, there was no bid for the same wheat. Where is the transparency and why is this happening?
In Western Canada the huge crop has caused all kinds of logistic problems in moving it out to ports. Is it the railway’s fault for not anticipating a larger crop? Or should we expect as farmers that they buy or rent railcars on short notice for the very big crop that we have? Should we expect this from the rail companies when next year’s yields may not be as robust? What would we do with all that rolling iron then?
So there are issues. Yes, there are many, many issues in Western Canada with grain. There is a complete re-educating going on in a marketing system, which previously had been dominated by the monopoly Canadian Wheat Board. The railroads and the big grain companies are engaging in oligopolistic market behavior, limiting choices and maximizing profits. Into this ether, basis has gone all to heck. Estimating the transparency in railroad capacity is even more difficult. For farmers with grain in the bins unsold, the lack of transparency can be daunting. The basis devaluation in Western Canadian wheat has been so acute, its resulted in a lost of millions of dollars of lost economic purchasing power for Western Canada.
Basis is the value at which grain is bought or sold. It’s as simple as that. However, transparency on how we get to that value can sometimes be shaded in secrecy. That surely is the case now in Western Canada. There are “clouds in our coffee”. How else do you explain no bids for wheat in west central Manitoba, versus premiums prices on the Minneapolis spot HRS wheat market?
This is “marketing freedom”, so hard fought for across Western Canada. With it comes marketing responsibility. Part of that is creating a transparent form of price discovery, which everybody can see clearly. Needless to say, that’s so far away.