Familiarity supposedly breeds contempt, but the opposite appears to be the case for Canadian Wheat Board pricing contracts.
The board’s daily price contract, introduced to a lukewarm reception in 2005-06, has taken off in its second go-round.
In the program’s inaugural year, only 406 producers took the plunge, signing up 75,564 tonnes under the DPC, which enables farmers to secure a daily price based on prices at U.S. elevators.
For 2006-07 the participation increased more than sixfold, with 1,361 producers signing on for 505,248 tonnes by the July 20 deadline.
Read Also
Bond market seen as crop price threat
A grain market analyst believes the bond market is about to collapse and that could drive down commodity values.
Interest also soared in the fixed price contract, as 7,295 farmers signed up for 1,574,336 tonnes for 2006-07.
That’s the most in the six-year history of the FPC, well above the previous high two years ago, when 5,869 farmers signed up 962,145 tonnes.
The basis price contract, meanwhile, has attracted a sign-up of 1,521 farmers for a record 399,776 tonnes, up from last year’s 353,145 tonnes.
While all that represents a significant increase in participation, one market analyst says he’s surprised more farmers aren’t using the contracts, given the high prices that have been available on the U.S spot and futures markets in recent months.
“That only represents about 10 or 12 percent of the prairie spring wheat crop,” Mike Jubinville of ProFarmer Canada said of the contracted tonnage.
“It should be much bigger than that if growers were on top of their marketing for wheat.”
Farmers using the DPC have been able to secure prices well above the board’s pool return outlook.
Average prices under the 2005-06 DPC were $210 to $225 a tonne this spring, well above the PRO of $201 for No. 1 CWRS 13.5 percent.
The 2006-07 FPC has been in the $210 to $220 range over the past couple of months, compared to the PRO of $207.
“This past year, if a grower had held out and waited until spring or early summer to price out his wheat under a daily contract, he would have blown away the pool and anything the FPC would have offered,” Jubinville said.
A CWB official said about 5,000 of the 75,000 tonnes signed up under the DPC for 2005-06 were still unpriced as of mid-July.
Board officials said the increased interest in the contracts can be attributed to three factors: the opportunity to lock in prices well above the expected pool return; the removal of duties on U.S. imports of Canadian wheat and increased familiarity with the pricing options.
“Farmers have become aware of the opportunity to access those values that are out there through the pricing options, and they’ve obviously embraced it,” said CWB spokesperson Maureen Fitzhenry.
Jubinville said while farmers he talks to are comfortable using the FPC, the daily contract is still a bit of an enigma for them.
