Farmers who want to use the Canadian Wheat Board’s basis payment contract, or BPC, for the 2007-08 crop year can get an earlier start at it.
The board has moved up the opening date for the next crop year’s BPC by six months, to Sept. 1, 2006, from the end of February 2007.
Mel Pawlyk, who manages the board’s producer payment option programs, said the change was initiated at the request of producers who wanted to cash in on market rallies earlier in the year.
“Normally we start all of our crop year programs with the first release of the new crop pool return outlook at the end of February,” he said.
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“But producers said they wanted to be able to take advantage of any rallies in the market a little bit earlier in the year than we traditionally did, even right after harvest.”
The board had already been looking at the possibility of doing so, he said, as part of its goal of providing producers with more options.
But the experience of last winter, when U.S. futures markets took off in January and February before 2006-07 contracts were available, reinforced the desire for a change.
“It definitely would have been nice to have it in place last year,” said Pawlyk.
The board will offer the U.S. December futures price in Canadian dollars for all seven classes of wheat.
Producers can lock in the futures beginning next week, then price and lock in their basis starting values as of Feb. 26, when the first 2007-08 PRO is released.
At that point the board will add the March futures contract, followed by the May and July contracts on Aug. 1.
Pawlyk said the board’s BPC offers producers a number of benefits:
- Increased certainty about margins when making seeding plans.
- The ability to lock in foreign exchange rates.
- Simpler, lower cost management of both the futures and foreign exchange.
- The ability to deal in smaller tonnages than in direct futures trading (a 20 tonne minimum with the BPC versus 136 tonnes).
Errol Anderson, an analyst with ProMarket Commodities, said the Sept. 1 opening provides more pricing opportunities for those farmers who want to use the basis contract.
However, he said growers should be focusing attention on the daily price contract or fixed price contract, which provide more straightforward opportunities to take advantage of market rallies.
If somebody feels the price of wheat will go higher, Anderson said, then he or she can always buy directly into the Kansas City or Minneapolis market and take total control of their destiny.
The BPC enables a farmer to lock in a wheat price based on two components: the basis, which is the difference between the PRO and the forecasted futures, less a discount; and the futures price on the relevant commodity exchange.
Farmers using a BPC receive the initial payment upon delivery, then receive further payments after both the futures and the basis of the contract have been priced.
