Washington, DC, USA
January 5, 2012
Source: U.S. Wheat Associates Wheat Letter, January 5, 2012
By Alan Tracy, President, U.S. Wheat Associates
A dramatic change in North American wheat marketing will take place this year with the end of the Canadian Wheat Board (CWB) monopoly over sales of western Canadian wheat and barley. After nearly three quarters of a century of total control over milling wheat in the west, CWB's monopoly will end as of Aug. 1, 2012. Although several lawsuits are still pending, we expect that change to happen and are planning for the future.
Canada's wheat and barley farmers will now have the freedom to market their grain to whomever they choose. We expect the marketing system will evolve quickly to return to producers the true value of their wheat and barley. On average, we expect Canadian wheat prices to increase at the farm gate, although locational differences will become more important and farmers may prosper or fail based on the marketing decisions they make. Some will choose to continue to pool their wheat, even with a newly reconstituted CWB, and accept an average price, while others will embrace the opportunity and personal responsibility to manage the risk and capture the potential rewards of individual pricing schemes. Western Canadian farmers already price their other crops by these methods and we expect them to adapt quickly. Likewise their elevators and handlers have experience handling other crops and will do what they must to attract grain to their facilities. We expect that new pricing options and information will become available and that prices will be largely transparent and public.
International buyers of Canadian grain will see some very important changes. They will be able to seek multiple offers, rather than face a take-it-or-leave-it price from the CWB. Buyers will need to specify their quality needs more carefully in their contracts. Multiple sellers means that products offered may differ as well. A few buyers will see cheaper Canadian wheat prices than before, relative to comparable U.S. wheat prices, but many will see an increase as Canadian wheat market prices equalize with comparable U.S. values. We look forward to the end of the CWB's administrative pricing and the many trade distortions it has caused in the international marketplace. We expect Canadian wheat will maintain a strong market presence, but with the open market guiding it to its destination far more fairly and efficiently than when under CWB management. In the long-run that will benefit both users and producers of Canadian wheat and producers and exporters of U.S. wheat that have long suffered from arbitrarily discounted board prices in selected markets.
An important question to us is, “How will this affect U.S. wheat producers?” There are still key issues to be resolved, such as Canada's strict variety registration regime and other barriers to U.S. wheat moving into Canada. Some of our international customers may not realize that the United States is already Canada's largest wheat export customer, but in a truly open market some wheat would indeed move north as well as south across our long border. As one U.S. wheat producer who farms near the border put it, “I’d rather compete directly with farmers than with the CWB.” In the future, we may see more Canadian wheat moving through the United States to our export ports and some U.S. wheat moving through Canada. If the bilateral border barriers can be fully resolved, it is logical that the United States and Canada will soon integrate into a single North American grain origination market.
Having urged the monopoly’s demise for so long, we at U.S. Wheat Associates (USW) are eager to to see it happen and hope any disruptions will be minimal. Together with the U.S. Government, we are working toward that end. Properly managed, this change can benefit all the key parties: Canadian producers, U.S. producers, buyers and the trade. We congratulate western Canadian producers on their newfound marketing freedom, and we congratulate the Harper Government for making it happen.
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