Winter wheat growers should look closely at the Canadian Wheat Board’s producer payment options (PPOs), says a marketing specialist with Cargill Ltd.
Winter wheat is usually called into the elevator system in the first few months of the crop year, in part to ensure space is available for the much larger spring wheat crop.
If a producer combines that early delivery opportunity with the board’s payment options, the result can be more money more quickly.
“When you take advantage of those PPOs, you’re able to get that much more money up front,” said Garry Sterna, a regional marketing coach with Cargill.
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“The combination of early movement and immediate payments is a real advantage. It’s hopefully more profitable and it generates cash flow.”
Speaking to the annual meeting of the Saskatchewan Winter Cereals Development Commission, Sterna lauded the wheat board for the array of pricing options it has introduced in recent years.
For example, the agency responded to complaints from farmers who wanted to be able to deliver their wheat to U.S. elevators when spot prices are higher than the board’s pooled price.
The U.S. domestic market is often unrelated to the world price due to domestic supply and demand issues.
The board responded by introducing the daily price contract, which allows farmers to secure a price based on a selection of U.S. delivery points on any given day.
“Give the board credit,” said Sterna. “It said, ‘you don’t have to deliver there, instead we’ll offer you a price based on the U.S. domestic market.’ “
In an interview, Sterna said the various PPOs provide farmers with significant access to prices they wouldn’t have had five years ago.
He also praised the board for developing programs that allow farmers to price their wheat outside the pool account and improve their cash flow.
Sterna said it’s unfortunate that only five percent of farmers make use of them.
“It should be a lot more,” he said, although he added it was encouraging that most of the farmers in the room raised their hands when he asked how many had used PPOs.
“You wouldn’t have seen that three years ago.”
In his presentation, Sterna provided examples of how the various payment options work, including the fixed price contract, basis and futures contracts, the daily price contract and the early payment option.
He recommended farmers spread out their risk by using a number of pricing options, such as pricing one-third of their crop through a fixed price contract, one-third through a daily contract and one-third through the pool account.
Those who are uncertain about the concept can put as little as 20 tonnes into a contract to test the waters. At the same time, Sterna acknowledged that the PPOs just aren’t a good fit for some growers.
“If it means you can’t sleep at night, don’t do it if it’s not right for you.'”
