Farmers will receive about 70 percent of the Pool Return Outlook for their Canadian Wheat Board grains in initial payments this coming crop year.
For example, one tonne of No. 1 Canada Western red spring wheat with 12.5 percent protein will bring an initial payment of $150, minus the usual deductions at the elevator. The current PRO for the same grade is $214 per tonne.
In some years farmers have received a higher percentage of the PRO in initial payments, but last year the initials were pulled back. That followed a deficit in the pool accounts the year before, in which the federal government had to pay $85.4 million to make up for the final price being below the initial payment.
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Last year the wheat board said it was disappointed with the initials, but it is satisfied this year.
“This is not inconsistent with our recommendations,” said wheat board spokesperson Louise Waldman.
“These are not unreasonable levels given the current volatility we’re seeing in world grain markets.”Private grain market analyst Brenda Tjaden Lepp agreed.
“There’s definitely a downside to the grain markets. There are a lot of bearish factors out there. A lot of people would look at the PRO and say it’ll have to come down.”
The initial payments are guaranteed by the federal government. The wheat board makes confidential recommendations to the federal treasury and the final decision is made in Ottawa.
Tjaden Lepp said she suspects the 70 percent level was not based upon an analysis of the world grain market but was simply a federal comfort level.
“It makes one wonder if all that’s taken into consideration is the percentage,” she said.
For the pool accounts to fall into deficit again, No. 1 CWRS with 12.5 percent protein would have to fall by a whopping $64 per tonne.
“That’s not likely to happen,” said Tjaden Lepp.
If farmers are unhappy with leaving a potential $64 per tonne on the table, they can lock in nearly 80, 90 or 100 percent of the PRO by using the wheat board’s newly expanded producer pricing options, Waldman said.
“For farmers who are disappointed, we have options for farmers,” said Waldman.
Farmers have to pay a premium for the wheat board’s risk, administration and interest costs, but for the 80 and 90 percent contracts, the cost is relatively low.
This year’s initial payments are substantially higher than last year, when No. 1 CWRS with 12.5 percent protein brought only $130 per tonne. Fortunately for farmers, the wheat market caught fire after harvest and the final price is now forecast at $211 per tonne.
That is $84 per tonne more than the initial payment if the price holds.
This year’s initial payments for wheat are the high point of the initials for farmers. While wheat is generally $20 per tonne more in this year’s initials than last year’s, it is only about $11 per tonne more for durum grades and down by $8 or $9 for malting barley.
For more information on the 2004-05 initial payments visit the Canadian wheat board’s website at www.cwb.ca.
