Most farm marketing advisers are recommending their clients use the Canadian Wheat Board’s Fixed Price Contract and the Basis Payment Contract, speculating that high wheat prices will wilt before some farmers are able to capitalize.
“When I put my farmer’s hat on I just want to keep a hold of it (unpriced) because I think wheat’s still going higher, but when I put my market analyst hat on, I say that these are great prices, so grab some,” said John Duvenaud of the Wild Oats marketing newsletter.
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“Don’t sell it all, but these are some darned good prices.”
The easiest way for farmers to market wheat is to leave it inside the CWB’s pool accounts and receive the pooled price over the course of its life. But for those who want their money faster, or who think they can do better than the pool, the FPC gives farmers an option to lock in a price and get their money sooner.
While the board’s arcane and often opaque basis and adjustment factor calculations have perplexed many marketing advisers this year, most still see current FPC prices as good bets for farmers.
“We’ve anticipated that it won’t last forever,” said Mark Lepp of FarmLink Marketing Solutions.
“We haven’t tried to pick the tops because in these markets that’s suicidal, so we’ve been selling in increments on the way up after locking in the basis.”
With wheat recently levelling off from its stunning rise, advisers like Lepp are encouraging their clients to pluck some prices while they can.
“There won’t be a whole lot left to market (after September 28).”
Analyst Errol Anderson agreed it is the time to use the contracts if you’re going to use them. The FPC sign up deadline is Nov. 1
“It’s likely not going to get any better,” he said.
Anderson believes wheat prices have peaked for the next few months and will not again rise much beyond $9 per bushel on the Chicago Board of Trade December 2007 futures contract.
“It’s a near term opportunity that we typically see only once in a decade,” said Anderson. American farmers are expected to seed large areas to winter wheat this fall, and when reports of their sowing progress are made in the next few weeks it will dampen chances for a major winter rally.
“When the world knows the U.S. winter wheat crop is off to a good start, it’s totally over,” said Anderson.
Lepp recommends that growers lock in wheat prices now, not because they can’t go higher, but because there’s less chance of them going higher than there is of them going lower.
“There are still a couple of things that could make this market rise by a buck or two a bushel, but there are more things that will make it drop by a buck or two,” said Lepp.
“The cards are stacking up. Wheat rallies don’t last very long. It looks like a blow-off phase.”
To Duvenaud, it’s prudent to lock up some of today’s wheat prices, regardless of whether one’s medium term forecast is bullish or bearish.
“FPCs provide the best dollar return for wheat farmers in the Prairies right now and it’s probably a reasonable thing to have some wheat priced on FPCs,” said Duvenaud.
