In October 1993, Canora, Sask., grain elevator manager Doug Chambers posted a feed wheat offer that drew calls from 300 kilometres away.
He offered a three-cent per bushel premium for feed wheat, pushing it to $2 per bu.
“I bought 1,700 tonnes that weekend,” said Chambers, still amazed at how glutted the feed wheat market was that year.
“That was 15 months after the fact.”
In late 1993, the 1992 crop was still plugging the system. Snow and frost in August and September of 1992 had downgraded most of the prairie wheat crop to feed quality. For more than a year that massive feed wheat crop slowly seeped through the grain handling system.
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Farmers who kept their feed wheat long past 1992, hoping for better prices to return, were disappointed.
This year is beginning to look a lot like 1992, said Chambers.
“We simply couldn’t handle the volume that was presented to us, and the system won’t be able to handle it this year either,” said Chambers, now a grain broker in southern Alberta.
Marketing advisers urge farmers to sell their feed wheat as fast as they can. Holding it won’t do any good.
“If you can move it, move it,” said Errol Anderson of Pro Market Communications in Calgary. “The worst thing (farmers) can do is refuse to deliver it because the price is awful. That will just make things worse.”
The wheat crop is coming off wet and with poor quality, but there is no clever marketing strategy to make a silk purse out of this sow’s ear, said John Duvenaud of the Wild Oats Grain Market Advisory.
“It’s a real mess. There is no easy answer,” said Duvenaud.
Western farmers face not only a glutted prairie market for feed wheat, but also a well-supplied world market.
In the U.S. the corn and soybean crops are huge.
Around the world, wheat crops have recovered this year after a poor harvest in 2003. Ukraine will be able to again pour low-quality wheat into the world market at low prices, undercutting the Canadian Wheat Board’s ability to mitigate the domestic situation.
Farmers will have to work hard to unload their feed wheat this fall, Anderson said, because low demand will draw feed wheat through the system slowly.
“Delivery is going to be a headache for the next several months,” said Anderson.
Duvenaud said farmers will have to bite the bullet if they want to move their feed wheat before their neighbours.
“The (elevators) will take what’s available from the guy who will sell it the cheapest, and he’ll move to the first place in the queue,” said Duvenaud. “That’s the story of commodities.”
Farmers may also have to swallow high drying costs because their wet grain will be worth nothing if allowed to heat in the bins.
“Are you going to put 25 cents (per bushel) of drying into a $3 commodity? You might have to,” said Duvenaud.
Feed mills generally don’t have large storage or drying capacities, so farmers should not rely upon those users to take care of that problem, he said.
Anderson said farmers need to forget about price while they arrange delivery for their feed wheat.
“Get rid of the delivery problem, then worry about price,” said Anderson.
He’s recommending a crop replacement strategy to the growers, encouraging them to sell their feed wheat as soon as they can, then buy futures or options on higher-quality wheat.
Focus on quality
Anderson said there is no apparent upside to feed prices, but there is for higher-quality wheat, so selling the glutted cash commodity and taking a position in a later market with a better grade of wheat gives a producer a chance to regain some losses.
Anderson said some growers have already done this. When frosts hit in August they quickly purchased Minneapolis Grain Exchange call options on spring wheat. Soon after the frost and other problems pushed feed prices down, Minneapolis spring wheat prices rose in response.
With most of the feed wheat crop still in the field, farmers aren’t yet grappling with the delivery problem.
But already prices are tumbling and low offers aren’t drawing a response, said Chambers.
“We’re definitely seeing a massive erosion of the prices,” he said.
