Canadian Wheat Board

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CWB barley marketing

The following is the CWB's response to a report entitled Market Signals in the Canadian Barley Sector by the Barley Working Group of Agriculture and Agri-food Canada's Cereal Grains Value Chain Roundtable. It’s an overview of how the CWB markets and sells barley, its teamwork with others in the barley industry in Canada, and how it provides market signals and services to farmers.

Marketing and Sales

The CWB’s marketing objective for barley is to maximize customer demand for malting, food and feed barley produced in western Canada. This is accomplished by maximizing the value created for customers. The CWB’s sales objective is to claim as much of that value as possible for the farmers it represents, through effective sales planning and negotiations. The end results are maximized volumes of designated (malting and food) barley sales at premium prices, and feed barley export sales at a premium to domestic feed barley values.

Breeding and Research

An important aspect of creating value for customers is developing quality barley. This involves breeding and other research.

The CWB led the establishment of the Western Grains Research Foundation (WGRF) barley check-off in the early1990s, which has resulted in significant quality and agronomic improvements in the varieties of barley planted in western Canada. The check-off is collected and provided to WGRF at zero administrative cost, due to the efficiency of using the CWB pool account as the collection mechanism. CWB farmer board members and staff are members of the WGRF Board of Directors and its Barley Advisory Committee, bringing market information and expertise to the table.

CWB staff provide similar market information and expertise to the Prairie Registration Committee for Oats and Barley, which is the industry-led body that makes recommendations to the Canadian Food Inspection Agency regarding the registration of new barley varieties for production.

CWB staff also conduct regular one-on-one meetings with barley breeders to ensure good two-way information flow on customer needs and innovative ideas from breeders that could benefit farmers and customers. The CWB brings customers to meet with breeders and has also included breeders on missions to visit CWB customers.

Other research-related organizations with which the CWB interacts regularly include the Canadian Grain Commission’s Grain Research Laboratory, the Barley Development Council (an industry organization which helps coordinate breeding and research priorities) and the Alberta Barley Commission.

Market Development, Customer Support and Education

The CWB arranges the testing of promising new barley varieties and encourages early adoption of them by customers. This process begins with small samples tested in Canada in early stages, then small samples sent to customers for early testing. As the volume required for testing increases, the CWB often offers Identity Preserved Contract Programs (IPCPs) to farmers in collaboration with grain companies. Plant-scale customer tests conducted as a result of the CWB’s IPCPs have been key to the successful adoption of varieties such as CDC Copeland.

The CWB is a founding member, the sole industry funding provider of the start-up capital for malting, brewing and lab equipment, and the most active user of the Canadian Malting Barley Technical Centre (CMBTC). As a result of CWB and other industry funding, CMBTC has been able to undertake research and provide technical support education to malting barley and malt customers around the world.

The CWB also founded and continues to provide nearly all of the industry funding to the Canadian International Grains Institute (CIGI). CIGI plays an important role in customer, farmer and industry education, as well as research and promotion related to barley products. Examples include a large number of educational programs for customers both in Canada and overseas, farmer programs such as the Barley Development Council’s Malting Barley Quality Competition Winners’ Course, Master Grower programs and investment in equipment and research related to food barley.

The Canadian Grain Commission (CGC) sets the grade standards for primary and export grades of barley. The CWB is a member of the CGC’s Western Grain Standards Committee, which advises the CGC on what those grade standards should be in order to best satisfy the interests of customers and farmers.

The CWB is also closely involved in food safety issues related to barley. This includes working with the Canadian Food Inspection Agency on phytosanitary and food safety assurance documents for customers, and with the Canada Grains Council on food safety certification programs. The CWB was also successful in obtaining “Green Food” certification from the Chinese government for 300,000 tonnes of malting barley shipments, a major achievement and a marketing advantage with certain customers in China.

Each year, the CWB, with support from CIGI and CMBTC, conducts new crop missions to customers to provide information on new crop quality and new varieties to support our new crop sales.

Market Analysis

The CWB invests significant resources to estimate as precisely as possible barley production, supply, demand and quality in all producing, exporting and importing countries. This proprietary market analysis is particularly important in malting barley markets, whose commercial conditions are not as visible as for some other crops.

The CWB’s Weather and Crop Surveillance Department uses its own technology as well as other information from around the world to estimate and project crop production and quality, including western Canada’s crop. Its Market Analysis Department establishes contacts with the malting barley industry around the globe and uses hundreds of sources of information to estimate supply and demand (including by specific time periods – e.g. how many weeks customers be able to continue processing their current barley stocks before they must purchase more), and to forecast prices.

Marketing Managers in the CWB’s Winnipeg office, as well as staff in the CWB’s Beijing and Tokyo offices, collect and share market information obtained in the course of their sales negotiations and communications with customers and competitors.

Sales

In addition to all the marketing activities conducted by the CWB to maximize customer demand, CWB marketing managers ensure that positive and trusting relationships are established and maintained with customers. Maintaining the CWB’s reputation for integrity in the market is paramount, given its long-term commitment to a positive brand for Canadian barley.

CWB pricing is always based on values for competitive barley in the relevant market, with every attempt made to extract premiums. In the case of malting barley, it is useful to think of three main market segments:

malting barley sold to domestic maltsters for domestic (Canadian) brewing use
malting barley sold to domestic maltsters for export malt markets
malting barley sold directly to export markets

Encouraging domestic “value-added,” particularly for malting and food barley processing, is a top priority. For this reason, the CWB has worked with Canadian maltsters and brewers to ensure supplies along with fair and consistent pricing. Prices for domestic brewing (approximately 350,000 tonnes out of a total of 2.1 million tonnes of annual average malting barley sales) are based on North American commercial prices, because that is the relevant competition for domestic beer production. Prices for export malt (approximately 700,000 tonnes annually) are based on the relevant competition in the export market. Usually, that competition is European or Australian malt. These prices can be lower than North American commercial values, but still attractive relative to feed barley values.

For malting barley sold directly to export markets, prices are based on the relevant competition landed in the export market. Premiums to the competition are extracted where possible, and may be based on demand for a Canadian variety generated from previous marketing efforts, knowledge of competitor supply and/or quality issues, timing of sales, or other factors.

Food barley pricing is based on the potential competition or the required premium value for Canadian growers for a new market or product area. In most cases, food barley markets are even less transparent than those for malting barley.

Feed barley prices are based on the competition as well. Premiums over the competition in a particular market are rare for feed barley as Canadian feed barley is not considered to be of superior quality to the competition in offshore markets. When offshore markets are at a premium to domestic feed barley values in feed surplus regions, the CWB works with handling companies to capitalize on these premiums and to execute offshore feed sales.

Most of the CWB’s barley sales are negotiated directly between the CWB and the end user (65-70 percent in the case of malting barley). Private companies acting as the CWB’s Accredited Exporters execute the remainder. Business relationships with these companies are important to the CWB, as they can provide improved access to some markets, for example when end users have an established relationship with a particular company that they would like to maintain, or when they wish to purchase multiple products on one ocean vessel. As with any sale, the CWB evaluates competing bids from AEs against other AEs and against direct business.

Private companies are also key CWB partners in terms of providing handling and origination services. The CWB tenders for competitive offers for malting and feed barley, and origination and handling, and generally chooses the offers that minimize the cost of executing each piece of business.

In addition to product quality, various services are provided to maximize price. Pricing options are one form of service. These include basis contracts for customers and forward flat pricing to maltsters, which allow them to offset their pricing risk with brewers.

Finally, after-sales service is provided to ensure that any quality or other issues are dealt with effectively.

Providing Market Signals and Services to Farmers

The CWB provides market signals and related services to farmers in a variety of ways. For additional details on all of the following, click here.

Firstly, payments are made in the following ways:

Regular Designated Barley or Feed Barley Pool Payments - initial, adjustment, interim, and final payments:
These are the traditional pool payments that allow producers to receive the pooled or average price for the same class/grade of grain marketed over the pool year.

CWB Basis Contracts for Malting Barley:
This option has allowed producers to lock in a basis to the WCE feed barley futures for their malting barley deliveries, which allows them to participate in any rally in the domestic feed market.

CWB Fixed Price Contracts:
This option allows producers to lock in a fixed price for their feed or their malting barley.

CWB Guaranteed Delivery Contracts for feed barley:
These have been highly successful in providing producers with timely delivery opportunities and enabling the CWB to source feed barley to meet opportune sales.

Early Payment Option (EPO) at 80, 90, or 100 percent of the PRO:
This option has been highly successful in providing producers with improved cash flow and price signals. Feed barley deliveries in 2005-06 were 90 percent EPO and malting deliveries were 40 percent EPO.

Value added Incentive Payment (VIP):
This payment of $3.00 per tonne is offered to producers for direct deliveries to processing plants. These deliveries save the pool handling system costs which are passed back to producers with this program.

Quality Payments:
The CWB also now offers quality payments for malting barley beyond those factors in standard grades. Protein payments were first offered in 2005-06. Other factors (e.g. plump) will be added in future in cooperation with grain handling companies.

In addition to payments, several other services provide thorough information on barley markets:

Recommended list of varieties
First launched by the CWB in 1996-97, this is now published by the Canadian Malting Barley Technical Centre. Its purpose is to provide farmers with a direct market signal as to which malting varieties are desired in the market and by whom. It has become an important reference document for farmers, customers and marketers.

CWB variety survey
Each year, the CWB conducts a comprehensive survey of farmers to estimate the actual seeded acres for each variety of barley.

CWB Agronomist
The CWB employs the only full-time agronomist dedicated to barley (and wheat) issues. He is in high demand and assists farmers and industry extension professionals with agronomic advice related to satisfying the needs of CWB customers and maximizing profits for farmers. He also coordinates research projects aimed at addressing production challenges.

CWB Master Grower programs
As part of the CWB’s strategy to link customers’ needs closely to farmers’ malting barley production, the CWB operates its Master Grower awards. The aim is to identify those farmers who are doing the right things to achieve the quality needed by customers, and to share this information with other farmers.

CWB Farm Business Representative network and CWB Business Centre
FBRs and the Business Centre are the front line in farmer communication in such areas as contract calls, delivery opportunities, PRO information, market outlook information, Producer Payment Options, crop plot tours and educational programs. FBRs organize regular meetings with farmers across the prairies. Other CWB staff also attend to provide information and consult.

CWB-CIGI Combine-to-Customer programs for farmers
“C to C” programs are week-long courses in Winnipeg offered to farmers from across the prairies. Their purpose is to teach them how to use the Canadian barley (and wheat) system to their best advantage.

CWB publications
The CWB produces numerous publications that provide critical market signal information to farmers and the industry, including Grain Matters, Go Malting and its Grain Marketing Report. In addition, as part of its ongoing market analysis functions, the CWB periodically publishes a long-term trade forecast to provide current information on Canadian and world barley markets, and make projections five and ten years forward.

Results

Schmitz and Gray (2006) concluded that a net annual benefit of $59 million has accrued to western Canadian barley growers due to the single desk and the CWB’s activities.

The CWB has consistently obtained premiums for six-row malting barley sales to the USA market (over U.S. barley). It was observed that during the Continental Barley Market in 1993, these premiums were offered away by multiple sellers.

The CWB sells 90 per cent of malting barley sales to China, our largest export market, directly to end-users on a delivered basis. This enables premiums to be obtained through timing of sales, the control of freight, and competition for the origination of the barley. The major Chinese buyers that the CWB sells to include COFCO, Tsingtao Beer Group, Beijing Yanjing Beer Group, Ningbo Malting Co., Guangzhou Malting Co. and China Resources. The CWB typically markets 400-600,000 tonnes annually to China; this volume is expected to grow in the next few years.

The CWB has worked closely with exporters and maltsters to promote and sell Canadian malting barley to SABMiller. As a result, Canadian barley is now the preferred source for this large international brewer which is dominant in the markets of South Africa, Colombia, Peru and Ecuador and a very significant player in the USA, China and Chile. The cumulative demand of this major buyer for Canadian barley/malt is approximately 500,000 tonnes per year.

The CWB works closely with domestic maltsters to assist in developing offshore markets to maximize malt sales and, therefore, value-added processing in western Canada. The CWB offers forward pricing at world levels for barley of similar quality so our processors can compete with the EU and Australia. The domestic maltsters will run their plants at near-capacity in 2006-07. This is the CWB’s largest malting barley market (at 1.1 million tonnes).

The CWB has led the industry in market development for new varieties. This has expanded markets for Canadian malting barley. These newer varieties are superior in both yield and quality and result in increased farmer returns from higher production and selection rates.

The CWB has worked closely with selectors to develop markets for Canadian food barley. The greatest success has been in the lucrative Japanese market where we sell about 35,000 tonnes of six-row barley annually for barley tea and rice extender. As well, we have made inroads into the shochu liquor market in Japan with 5,000 tonnes per year of two-row Metcalfe. Demand from this market is expected to grow.