Farmers won’t be confused by this year’s version of the Canadian Wheat Board’s producer payment options, says a farmer-director.
Unlike last year’s program, basis levels won’t wildly swing around and farmers will not have to live in fear of the next Pool Return Outlook.
“Some of the farmer frustrations with the dramatic moves of the basis on PRO day shouldn’t happen this year,” said Ian McCreary, a Saskatchewan CWB director.
“It is a more stable basis and should be more predictable for farmers who want to use it.”
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The wheat board offers fixed price contracts and basis payment contracts. The fixed price contract allows farmers to lock in a price for wheat and feed barley before July 31, the beginning of a new crop year. It is determined by applying a basis to December futures prices.
The basis payment contract allows farmers to lock in a spread between futures prices and a futures price prediction made by the CWB.
Last year’s program set basis levels when the PRO was released, usually the third Thursday of each month, by establishing a spread between that day’s wheat futures price and the new PRO price. That spread was maintained for a month until the next PRO release, even if futures prices changed dramatically in the intervening weeks. When the new PRO was announced, the spread could suddenly change, confusing many farmers.
This year the basis will be set by the CWB based on the difference between the PRO and its own prediction of where futures values will average out. It will not be arbitrarily set on the PRO day to a rigidly applied futures prices but to a less volatile gauge.
McCreary said there are other improvements.
This year’s program started one month earlier for wheat (on Feb. 24) and will start on April 24 for durum, also a month early.
The program now provides a way to lock in futures prices for wheat well before the program is operating. Farmers will be allowed to take futures positions at commodity exchanges, and trade those futures positions for equivalent positions in the producer payment options program once it is activated.
Farmers will now be able to capture price rallies such as the one that occurred just after harvest, said CWB risk manager Gary Pichlyk.
“He can lock himself into a futures position a lot earlier now.”
The board thinks this will allow farmers to enjoy the benefits of the futures market.
“The key objective here was to give farmers an opportunity where they can capture a high value, if they feel it’s a high value from their perspective, and then tie it into our pricing program once it comes into effect,” said Pichlyk.
Some farmers who don’t like the board’s price pooling system have demanded access to futures hedging, but others have been worried that the wheat board would undermine pool returns by offering futures-based pricing.
Pichlyk said this year’s program protects the price pools and provides a way to use futures markets.
“The connection is getting closer and closer,” he said.
McCreary thinks farmers will find the revamped producer payment options program gives them better access than they’ve had before to
futures prices.
