The Canadian Wheat Board’s Early Payment Option could help a lot of
farmers this fall, says Alberta Agriculture market analyst Charlie
Pearson.
“I wouldn’t deliver a kernel of wheat outside of that program,” said
Pearson.
“Why not capture as much of your total payments as you can? Why leave a
lot of money in the pooling account?”
The Early Payment Option, or EPO, is available for wheat this year. The
program allows farmers to receive about 90 percent of the Pool Return
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Outlook, or PRO, value for their wheat deliveries, rather than the
usual 75 percent that initial payments provide.
Farmers pay a premium for administration and the CWB’s risk, but
Pearson said it is not prohibitively high.
In some years farmers do not need all of their money from crops right
away, but in this year of drought, farmers need to get their cash fast.
“All farmers this year are really struggling on the cash flow side,”
said Pearson. “People have bills to pay. You need money. What the Early
Payment Option allows you is to capture more money.”
Wheat board chair Ken Ritter said he’s glad the program is available
for wheat when farmers are desperate for cash.
“Farmers are always in need of large bundles of cash around harvest
time to pay off all their input bills,” said Ritter. “This is a very
critical period.”
Pearson said the program offers farmers the equivalent of a put option.
It locks in a floor price, but allows the producer to capture any
increase in final returns. After receiving the 90 percent payment, the
EPO user remains in the pool account.
If adjustment, interim or final payments rise above the value that they
have locked in under the EPO, participating farmers will get the
additional payments.
But if the PRO that was selected turns out to have been too optimistic
and the final price is more than 10 percent below that PRO, the user
keeps his original 90 percent. Those in the pool who didn’t use the EPO
program take all the losses over 10 percent.
“You can effectively give yourself a strike price of 10 percent below
the market,” said Pearson.
“You pay a premium for that, but at least you guarantee yourself a
price.”
Pearson said his biggest complaint about the program is that it is not
offered for durum and malt barley.
