Soft white spring wheat growers in southern Alberta have a new way to price their grain.
The new contract offered by the Canadian Wheat Board is expected to prevent farmers from abandoning the crop this spring, as some industry officials had warned might happen if prices didn’t improve.
“We were at the point where there wouldn’t have been any soft wheat grown in southern Alberta,” said Lynn Jacobson, chair of the Alberta Soft Wheat Producers Commission.
“I think farmers will look at this and compare it with hard wheat and we’re going to be able to compete with hard wheat for acres.”
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Under the new contract, producers will receive an up-front, market-based cash price for soft white spring wheat delivered into the human consumption market, which includes mills for processing the wheat into flour and maltsters for processing it into beer malt. The program is the result of lengthy negotiations among producers, the CWB and processors.
The soft white spring industry has undergone tremendous change in the past few years because of expansion in the ethanol industry, which uses lower quality soft white wheat as a feedstock.
Wheat board marketing manager Leif Carlson said the new program benefits everybody.
“Producers are looking for a way to get a price for their malting wheat that’s better than ethanol,” he said.
“For the maltsters who want soft white spring for wheat beer or the millers who wants it for flour, they’ll be able to identity particular stocks of grain that suit their purpose and get it directly from the farmer.”
Here’s how the program works:
- The CWB negotiates a sales price with domestic millers and maltsters
- Based on that, a guaranteed farmer price for a specific delivery point is calculated, reflecting timing, location, market conditions and quality
- Interested producers must then enter negotiations on the three-way contract with a processor, figuring out a basis level to reflect elevation, cleaning, storage, trucking and quality premiums
- On delivery, the farmer is paid the guaranteed price, adjusted for the basis
- Contracts can be for pre- or post-harvest periods, at the discretion of the domestic processor
Jacobson said he expects the contracts will prove popular with growers, noting seed sales have reportedly increased dramatically recently. The big question will be how processors respond.
There are two markets for soft white wheat: one focused on quality and the other on quantity.
Seeded area in Alberta has typically been 25,000 to 30,000 acres in recent years, which the commission would like to see increase to 40,000 to 50,000 acres to serve the domestic milling market.
In Saskatchewan, it’s all about volume. Farmers in that province seeded 700,000 acres in 2009, all of it destined for the lower-priced ethanol market.
Due to start-up problems at one ethanol plant last year, 160,000 tonnes of lower quality soft white wheat were offered to the CWB. Those sales drove down the pool return for high quality growers, resulting in prices below the cost of production.
In a statement describing the new program, the board said the availability of the contracts will depend on how well the new system fits with the processors’ sourcing requirements.
The board said it expects limited processor interest in pre-harvest contracts, while the availability of post-harvest contracts will depend on market condition and processors’ specific quality and quantity requirements.
The board will market soft wheat grown outside the contracting system in the traditional manner, with initial and final pooled payments.
Pricing example:
Here’s an example of the new soft white wheat pricing program, using a pre-harvest contract for October-November delivery to a processorin Calgary.
- Guaranteed Canadian Wheat Board price No. 1 CWSWS, less than 10.5 percent protein, $182 per tonne delivered Calgary
- Less basis, consisting of $17 a tonne for elevation and cleaning plus a $5 per tonne truckingincentive
- Net basis deductions equal $12 a tonne
- Price paid to producer on delivery to Calgary $170 a tonne ($182 minus $12)
– With files from Ric Swihart
