The Canadian Wheat Board’s early payment option programs aren’t too good to be true, but they are too good to ignore, says a farm marketing expert.
“I just can’t imagine not taking it at the 80 percent level,” said Alberta Agriculture farm marketing adviser Lee Melvill. “I think producers should be using it for any of the crops that offer an 80 percent level.”
The early payment options program is expected to operate until Nov. 28, but its contracts for any of the grain covered could be cancelled at any time before. Producers should act soon if they are considering the program, Melvill said.
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The early payment options program is part of the wheat board’s producer payment options system, which expands marketing options for farmers who are dissatisfied with the simple initial-interim-final payment system that most farmers rely on. The EPOs offer farmers a way to quickly receive almost all of the money for their grain at delivery, rather than having to wait for interim and final payments.
With the early payment options, farmers can lock in a guaranteed 80 or 90 percent of the wheat board’s pool return outlook, which they will receive immediately upon delivering their grain.
Farmers who rely on initial payments usually only receive about 70 to 75 percent of the expected final price when they deliver.
Melvill said getting most of the money up front allows farmers to pay off bills fast and reduces the volatility of returns for wheat board grain.
The EPOs also lock in a minimum price for the grain at 80 or 90 percent of the PRO, but still allow farmers to receive more if the final pool price rises above the PRO.
Melvill isn’t as enthusiastic about the contracts that provide 90 percent of the expected return as he is about the 80 percent level.
That’s because the premium – what the wheat board refers to as the “discount” – on the 80 percent return is much smaller. Recently, the premium was only $1.25 per tonne, or about three cents per bushel, for a number of wheat classes. But for hard red spring wheat, that premium jumps to about $4.50 per tonne at the 90 percent coverage level, which is a much less attractive price.
Similarly, durum, which only offers coverage at a 90 percent level, recently had a premium of $7 per tonne, or about 20 cents per bushel.
“It’s not a real bargain,” said Melvill.
But the 80 percent rates are bargains and producers should take advantage of them, Melvill said.
“The cost is so low,” he said.
“They’re buying insurance that says I can lock in my board grains for 80 percent of the current PRO. The payback on it is significant. Basically what they’re buying is a minimum price contract.”
The only frustration Melvill sees with the program is the danger of elevators being plugged and producers not being able to deliver grain.
