THE Canadian Wheat Board said last week that it had requested the federal government to increase initial payments for the 2005-06 crop year. The move follows suggestions from farm groups that they do just that.
Now Ottawa should heed the advice.
The initial payment for No. 2 Canada Western red spring wheat, 13.5 percent protein, at port is $3.41 per bushel, or 65 percent of the Pool Return Outlook.
Backed off to the farm, the situation looks worse. Using an average Saskatchewan handling and transportation deduction of $1.48 per bu. nets an on farm initial of $1.93, only 51 percent of the on farm PRO of $3.80.
The case is more dramatic in feed barley. At port, the initial is $1.59, 57 percent of the PRO. With handling and transportation deductions for Saskatchewan of $1.28 per bu., the initial is a pitiful 31 cents per bu., only 20 percent of the on farm PRO.
Some might argue that keeping initial payments low eliminates the risk of a government payout and subsequent negative reaction from trading partners. The wheat board is already under fire at World Trade Organization talks and deemed by some countries as an unfair trader because the government covers shortfalls in the rare event that initial payments exceed pool returns.
The last time the government guarantee of the initial payment came into play was 2002-03. Drought had shrunk the Canadian crop and other major wheat suppliers also had production problems. Early in the crop year, world prices were soaring, and Ottawa approved two large increases to the original August initial payment.
Then market conditions dramatically changed when Russian and Ukraine wheat for the first time unexpectedly flooded the market. Also, the Canadian dollar rose.
The result was an $85.4 million deficit in the wheat pool that the federal government had to cover.
While that experience underlines the volatility that can wrack grain and currency markets, this year’s market outlook indicates there is room for a modest but welcome increase to initial payments.
As harvest winds up in the United States, the world’s largest wheat exporter, the estimate of its wheat crop size has shrunk from the summer.
Australia has forecast a good crop, but drought hurt European production and in parts of Argentina the crop is being seeded into dry soil.
Market analysts now pay more attention to production in the former Soviet Union so surprises there are less likely.
Except for the unusual 2002-03 market, the CWB does a good job of reading the market and recommending initial payment levels. To find the previous deficit, you have to go back to 1990-91.
It is important to get money in farmers’ hands as quickly as possible. Bills are coming due. Given present market signals and the cautious approach taken in setting this year’s initial payment, an increase is in order.