Not all farm marketing advisers recommend the Canadian Wheat Board’s producer payment options programs, including the Daily Price Contract, which began sign up June 1.
But all agree that producers who take part should keep an eye on the markets, especially if they’re new to the programs.
“You need to follow it on a daily basis to get familiar with how (the wheat market) fluctuates and how the basis changes,” said Union Securities broker Ken Ball.
“Otherwise you can’t make a good judgment.”
The wheat board offers a number of pricing programs that provide farmers with alternatives to the pool accounts.
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The Daily Price Contract, which is a cash price based on U.S. elevator prices, was introduced in the 2005-06 crop year. Producers can sign up for the program between June 1 and July 21, by committing a certain quantity of wheat to be marketed before July 31, 2007. Then between Aug. 1, 2006 and July 31, 2007, the producer will have to price the contracted grain by the board’s listed DPC price.
Seven grades of board wheat can be signed up to the program, with the price of each connected to a U.S. wheat futures contract, such as Minneapolis hard red spring wheat, Kansas City hard red winter wheat or Chicago soft red winter wheat.
The DPC is a blended price of futures and basis levels, so only one price for each class will be listed. This year’s program has a limit of 500,000 tonnes.
When wheat is delivered to the elevator the producer will be given the initial payment for the grades of wheat minus grain handling charges. The board will then apply the DPC price against that payment and send a cheque to the farmer for any remaining spread.
Marketing adviser Errol Anderson said these types of programs are perfect for farmers who want to actively market their crop.
“They really enhance growers’ flexibility,” said Anderson. “I really do like them.”
He warned that producers might not make more money than they would from the pool account. The wheat market now may have peaked and could drop in coming months. But for producers who want to lock in a price and don’t like pooling, these programs can be even better than futures hedging.
“What I like is that growers can take advantage of those prices without putting themselves at risk in a volatile futures market, which can be key at this time of year,” said Anderson.
“That’s important because it seems hedgers are always stressed when you get volatility. This gets that stress off of them.”
But adviser John Duvenaud is telling his clients not to worry about wheat marketing. Just leave it to the wheat board.
“Stay away from them,” he said about the payment options.
“Stick to the pool. All you’re doing (with the options) is complicating your marketing procedure … . The board usually does a pretty good job of protecting the pool.”
Duvenaud said growers ask him about the pricing options “all the time.”
Ball said his customers are also interested in the pricing options and have had good results.
“In past years growers have not only picked off very good prices but also attractive basis quotes from the board,” said Ball.
The keys for a farmer are to know each program, watch it carefully, and then price when experience shows it’s a good time to cash out.
“You may have to follow the thing every day for three months before it pops up,” said Ball. “But it’s certainly something they should be watching.”
Ball said the pricing options are giving farmers who want more control of their wheat pricing a chance to reduce some of the annoyance they have with the board system.
“They like these (options), and I’d describe them as not ardent board supporters,” he said with a laugh.
