In the wake of an $85.4 million deficit in the 2002-03 wheat pool account, the Canadian Wheat Board has revealed that it has begun preliminary discussions with the federal government about taking over the financial risk associated with interim payments.
Such a change would enable the board to make payments to farmers as market conditions warrant, without waiting for federal approval.
The result would be more timely adjustment payments and improved cash flow for farmers, said CWB chair Ken Ritter.
“We believe that given the right circumstances, with sufficient underpinning of risk management money and capital to do that, it’s a reasonable possibility,” he said.
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Partly as a result of the 2002-03 deficit, he said, the federal government has become more “conservative” about approving increases to initial payments.
However, he cautioned that discussions are preliminary and the big issue will be how the board finances the risk it would assume.
The money would have to come either from Ottawa or from farmers through a checkoff.
Ritter wouldn’t speculate how much money is needed, but did say that given the federal government’s financial situation, it’s unlikely Ottawa will provide the necessary amount any time soon.
“These are negotiations that often take a long time – 18 months or a couple of years – before they become something concrete,” he said.
Ritter also emphasized that the discussions involve only interim payments, not the initial payment, which would continue to be guaranteed by Ottawa.
It has been known for months that the board would incur a deficit in the 2002-03 wheat pool account. The only question left to be answered was how big it would be.
The answer came this week, as the board announced a shortfall of $85.4 million. The marketing agency sold No. 1 CWRS 13.5 percent protein wheat for an average price of $240.34 a tonne, $9.86 cents a tonne below the initial payment of $250.20. The federal government is responsible for making up the shortfall.
The $250.20 per tonne (less freight and handling) received by farmers is the second-highest wheat price ever in nominal terms. So is the $240.34 that the board extracted from the world grain market.
There are several reasons for the deficit: the unexpected appearance of large volumes of low-priced grain from Black Sea area exporters, which drove down world prices; the late, low-quality harvest in Canada, which prevented the board from taking full advantage of high prices early in the crop year; and the unexpected rise in the value of the Canadian dollar.
The change in the dollar alone reduced the value of the pool account by $12.25 a tonne.
“Had the American dollar not been devalued … we would not have had a deficit in the wheat pool,” said CWB chief executive officer Adrian Measner.
Ritter said the board of directors is satisfied with the marketing decisions made by CWB management, noting that 60 percent of world wheat traded at less than $110 US during 2002-03.
The deficit is bound to be used by U.S. critics to back up their arguments that the board is a non-commercial entity that provides a government subsidy to Canadian farmers.
“It does lend credence to what we’ve been saying,” said Judge Barth, marketing specialist with the North Dakota Wheat Commission.
