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How Much Wheat Have You Priced?

Delivering wheat to the Canadian Wheat Board (CWB) isn’t the same as pricing it, even if the wheat is just going into the pool.

And until grain is priced its value can go up or down. That’s why about a year ago the CWB introduced a price calculator farmers can access on the CWB’s website and using their own figures determine how much of their CWB wheat has been priced.

“We discovered some farmers were thinking if they delivered their wheat to the elevator then it’s priced, but of course that’s totally independent,” Justin Daniels, who works in the CWB’s commodity risk management area, said in a recent interview.

(Find the price calculator at: http://www.cwb.ca/public/en/farmers/producer/pace/calculator.jsp.)

PRICING PACE

Farmers only selling through the CWB’s pool have to go with the pricing pace set by the CWB’s board of directors – something the board determines well before the start of the new crop year.

“Wheat board management, including risk management and market analysis and marketing has some discretion around those targets,” Daniels said.

But farmers who have signed up for the CWB’s various Producer Payment Options (PPO) have more flexibility as to when their wheat is priced.

The calculator can determine what percentage of the farmer’s wheat crop has been priced, including what’s gone or is going into the pool, as well as what’s been priced through the PPOs.

As of Feb. 16 about 63 per cent of the CWB’s wheat pool had been priced through a combination of cash sales and futures, Daniels said.

“Whether you delivered it or not we have 63 per cent of it priced,” he said. “In fact even if you haven’t signed up a B series (delivery contract) we’ve estimated the B series acceptance and we’ve priced 63 per cent of that estimate.”

COMBINATION

The pricing is done through combination of cash sales and futures contracts.

It takes the CWB 18 months to price grain delivered through the 12-month crop year, Daniels said.

“We trade futures almost every day at the wheat board,” Daniels said. “It’s almost impossible to find cash buyers to fine tune what we’re trying to do here.”

The CWB reports its pricing pace monthly with its Pool Return Outlook and weekly in an email to farmers signed up to get more information on PPOs.

“Even though the wheat board has a lot of resources to put into market analysis and weather and crop surveillance, it’s still not possible for us to accurately predict a market high,” Daniels said.

“The intention is to price through the year because we can’t predict the high. We want people to know the pricing level we’re at, so if they want to adjust their personal pricing level on their farm they can use a PPO to advance it or slow it down.”

SLOWER IN SUMMER

At this time of year each week the CWB prices another two per cent of the wheat it expects will go through the pool. The pricing pace is slower – around one per cent a week – throughout the early spring and summer, Daniels said. The deadline for signing up for most of CWB PPOs was Jan. 31 this year – three months longer than last year.

“We’ll see if the wheat board can move that signup deadline again to make this even more flexible,” Daniels said.

Farmers in the FlexPro program still have the opportunity to price their wheat, but the deadline for signing up for that program was July 31.

Farmers can also still sign up for the early-payment option and cash out of the pool, but at a discount to reflect the risk of paying out before total value of the pool and the time value of money.

More farmers tend to sign up for the PPOs when markets are rising and that has been the case this crop year. Almost 5.4 million tonnes have been contracted, second only to almost 6.4 million tonnes in 2007-08 when wheat prices hit historical highs.

RISING MARKET

A record 3.8 million tonnes of wheat has been contracted under the

Fixed Price Contract this crop year. Farmers enrolled in that contract could have received an in-store price (before freight and elevation are deducted) of $349.06 a tonne for No. 1 Canada Western Red Spring wheat 13.5 per cent protein, said Dave Gallant, the CWB’s manager of farmer programs.

It was possible to have locked in $413.99 a tonne with a basis contract.

The highest value under the FlexPro option so far this year was $406.69. [email protected]

———

“Wediscoveredsomefarmerswerethinkingiftheydeliveredtheirwheattotheelevator,thenit’spriced,butofcoursethat’stotallyindependent.”

– JUSTIN DANIELS

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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