Many advisers say the Canadian Wheat Board’s new Early Payment Option for feed wheat is what farmers need to clear their bulging bins.
They say it’s a chance to lock in prices for a crop farmers have too much of, that lets them play out their market price expectations in several ways, and which is already raising feed wheat prices in Western Canada.
“It’s a good tool,” said analyst Darren Frank of FarmLink Marketing Solutions.
“You’ve got a chance now to make a decision about where you think the market’s headed. Any time you’ve got these options, it’s a good thing.”
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The new feed wheat EPO gives farmers the usual options of signing on for 80, 90 or 100 percent of the Pool Return Outlook price (minus a premium and subject to grain transportation charges), plus the new options of signing up feed wheat for 125, 150, 175 and 200 percent.
The premiums on the higher percentage rates are large. On Dec. 3, the premium for CW feed at 200 percent of the PRO was $220.58 per tonne, which equals $6 per bushel.
The premium was $54.69 for the 125 percent option, $10.43 for 100 percent and $2.94 for 80 percent.
But the net price for the higher percentages is above the PRO. The net 200 percent EPO price was $6.62 per bu., versus the PRO of $6.31. The 125 percent EPO was $6.40 and the 100 percent was $6.03.
Advisers say any farmer wanting quick cash after delivery should consider using the feed wheat EPO, especially because many farmers have so much of it this year. But they say the different levels and premiums require farmers to choose what market outlook they want to gamble on.
“If you’re really going to do a 200 percent EPO on feed wheat … your view is that the market is not going to go any higher,” said Frank, noting farmers would only get top-up payments if the PRO exceeded $12.63 per bu.
Charlie Pearson of Alberta Agriculture said that’s unlikely, considering how much of the prairie crop has already been sold at lower prices.
“When you’re 40 to 60 percent priced, what’s the possibility that you’ll have some of these great big run-ups in prices?” said Pearson.
“A $5 per bu. feed wheat (net Alberta price): is that necessarily such a bad thing?”
But for farmers who want to keep an upside rally of the PRO open for them, the lower level EPOs are a better bet, advisers say. A 100 percent EPO only costs 28 cents per bu. (as of Dec. 3), so any rally over $6.31 would bring a farmer more money later on.
The 80 percent EPO on feed wheat is best suited for farmers who want quick cash after delivery, but are most bullish, advisers say. The premium is only one penny per bu.
The CWB’s new feed wheat EPO is already driving up prairie feed wheat prices. Doug Chambers, manager of feedgrain trading company Quality Grain, said many speculators who had bet on feed wheat prices falling rushed back into the market.
“We’ve seen a number of resellers active in the last couple of days trying to get some coverage for some short positions,” said Chambers.
With a glut of feed wheat in Alberta after a severe harvest frost, Chambers said this program will help.
“In Alberta, we have way more feed wheat than the domestic market can use,” said Chambers.
Frank said the CWB had to radically reshape a program that was never meant for feed wheat in order to give this option to farmers but he doesn’t know how else they could have achieved the result with any other program.
“It’s the simplest and easiest way for the board to compete on a cash to cash basis,” said Frank.
Pearson recommends farmers check program details before deciding what to do.
He would prefer to see international feed wheat prices available to farmers on the Prairies, but thinks the new program is a good tool.
