Companies stand by their basis bids

Grain handlers want to know what information Alberta Wheat Commission wants before committing to pricing website

Farmers might need to get used to vexing basis levels in prairie wheat prices, say a senior grain company official and the Western Grain Elevator Association.

The complicated reality of wheat basis is a product of the end of the CWB monopoly and each company’s methods of coping.

“We don’t know the specifics of how all the companies do it,” said Brent Watchorn, Richardson International’s executive vice-president for marketing.

“We all took a little different approach as to how we were going to put our prices in front of the farmer.”

WGEA executive director Wade Sobkowich said wheat is a particularly complicated crop, with multiple grades, quality specifications and logistical challenges, so wheat basis levels are likely to range in unpredictable ways elevator to elevator and order to order.

“There are so many factors at play that influence the (basis),” said Sobkowich.

Many farmers have recently fumed over wheat basis levels that have confused them or seemed suspicious.

Some of them expected to see better basis levels while the Canadian dollar was falling because of the foreign exchange implications of U.S. dollar-denominated wheat futures.

Others have been frustrated by basis levels that seem to be calculated differently between companies, which makes it hard to work out if the basis at a particular company or elevator is attractive.

Watchorn said there might never be a basic wheat basis on the Prairies because of company-specific needs and ways of listing basis prices.

For instance, companies are using different “base grades” for the foundation of their basis and spread calculations. If one company uses a 2 CW red spring wheat with 12.5 percent protein, its basis compared to futures will likely be much different than one that uses a 1 CW red spring with 13 percent protein, Watchorn said.

“That establishes how all of your mechanisms, all your computer systems and your pricing gets inputted and gets tracked and gets offered to the farmer,” he said.

“You initially start with different base grades with at least two or three companies, bigger companies, that I’m aware of.”

However, even if companies had identical base grades, they don’t have matching needs.

Each wheat or durum sale has a particular grade and specification, so a company that has an order to fill will likely have good basis levels for that grade and specification,

The basis will drop once the company has enough to fill the order.

“Every company is managing it on its own. If you sell 180,000 tonnes of durum to Algeria or Turkey tonight … you’re probably going to be in the market pretty aggressive for the next week,” said Watchorn.

“But if we tendered on that business and we missed it, and Viterra got it … they’re going to be bidding and we’re not going to be bidding.”

The Alberta Wheat Commission recently announced it was planning to publicly post a set of regional crop basis or price averages so that farmers could more easily assess the competitiveness of various companies’ bids.

Watchorn said a lot of work needs to be done first to define what information is being requested before grain companies know what they can provide, what they’re willing to provide and what is useful to provide.

He said many wheat bids are based on specific sales, which means that if it takes more than a few hours to publicly post a price, it may be different by then.

“It’s a lot of work (to collect, collate and transfer prices from multiple locations and at different times of the day when prices are changing), and the question is, ‘is it really worth it?’ ”

He said Richardson needs to know what information the Alberta Wheat Commission wants grain companies to deliver before he will know if his company can or is willing to commit the labour required to deliver it.

Viterra was not willing to comment, and Cargill did not return a request for comment.

Sobkowich said he is not sure if the WGEA will be able to provide an industry position on the issue. Competition laws restrict companies in the same business from talking too openly about activities that could be seen as anti-competitive.

“We’d need a legal opinion if considering having an industry opinion,” Sobkowich said.

However, he said farmers shouldn’t assume there’s something wrong with wheat basis levels just because they are hard to understand. The companies might do things in their own ways, but they are competing for farmers’ grain.

“We operate in a competitive environment and my members, each one of them, compete very fiercely,” said Sobkowich.

“I see it each and every day. From time to time they are even unwilling to get into the same room with each other.”

About the author



Stories from our other publications