New marketing strategies are being adopted by the Canadian Wheat Board in hopes of improving returns to farmers and eliminating future deficits in the pool accounts.
The marketing agency’s board of directors has already approved several ideas and will be considering more at a long-term planning session in Winnipeg Jan. 21.
“We’re looking at all the options that are out there,” said CWB chair Ken Ritter.
Fellow wheat board director Rod Flaman said the board needs to change its longtime approach of pricing grain in roughly equal increments over the course of the crop year.
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“It’s apparent to this board of directors now that that strategy didn’t work last year and we need a new strategy,” he said.
Here are some of the ideas adopted or under consideration:
- Under a new “wheat pool pricing model,” the board will continue with the strategy of pricing grain throughout the marketing year. But it will be more flexible in using derivatives, such as hedging and options, to price grain when cash sales are not available and the market is strong.
The directors will set out parameters on the use of these derivatives and how much risk can be assumed.
- The agency will work on developing new mechanisms to identify spikes in the market and ways to take advantage of those spikes.
- The board will devote more resources to developing market intelligence.
- More attention will be focused on figuring out the volume and quality of grain that Canadian farmers will make available to the board for export.
- The board has set out new guidelines outlining the conditions under which a pool account can be closed early.
“I think our board is prepared to accept a little more risk to try to capture the higher spots in the market,” said director Art Macklin.
He said because the directors are dealing with farmers’ money, only a limited amount of risk is acceptable. Individual farmers who want to take on more risk can use the various pricing options offered by the board.
The board has been criticized by some farm groups and market analysts for failing to capitalize on the strong market early last crop year.
“They missed the best prices that were available in 10 years,” said Brenda Tjaden-Lepp, a market analyst with Mercantile Consulting of Winnipeg. She described the board’s marketing strategy as “rudimentary,” adding the board could have locked in higher prices using derivatives.
Farm groups such as Grain Growers of Canada and the Western Barley Growers also criticized the board’s performance, while the National Farmers Union defended the agency, saying it got good prices despite volatile and unpredictable grain and financial market conditions.
One factor in last year’s $85.4 million deficit was the unexpectedly large volume of grain that farmers delivered late in the crop year. Roughly two million tonnes of wheat were unexpectedly delivered and had to be sold when prices were bottoming out.
That led to some discussion at the board table, prompted by Flaman, about closing down the wheat account and setting up a separate pool for the late-delivered wheat under the Series C contract.
The idea was rejected on the grounds that the board had made a commitment to farmers to accept all their grain. There were also questions about the legality of such a move.
However, Flaman still thinks it is a good idea.
He said it wasn’t fair to farmers who had committed their wheat to the board early that other farmers could hang on to their stocks until they saw the open market price drop below the board’s price, then dump their grain on the board late in the crop year and drive down the pool price.
