Farm marketing advisers hope they can stop farmers from chasing the wheat bull before it turns on them and becomes a bear.
They are encouraging farmers to lock in wheat prices now.
It’s not an easy message to sell to farmers dreaming of wheat prices roaring higher and higher, but it’s a message common to many advisers.
“If there are fellows out there who haven’t done anything with the Fixed Price Contract from the (Canadian Wheat) Board, they really need to be looking at that seriously now, really seriously,” said Alberta Agriculture marketing advisor Lee Melvill.
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Errol Anderson of Pro Market Communications agreed.
“This is a nice opportunity to look at those board fixed prices,” he said.
Brenda Tjaden Lepp of FarmLink Marketing Solutions concurred with her colleagues.
“This is a bird in the hand. It’s a good time to catch up on sales if they missed the last rally,” she said.
“It’s very rarely you’ll see this kind of difference between the FPC and the Pool Return Outlook.”
The FPC is a contract offered by the CWB on a number of its wheat classes. It is based on a combination of the PRO and a basis and is an indirect way for a farmer to lock in a close-to-market price for his wheat.
If a farmer has signed an FPC, he receives his initial payment at the elevator. The rest of the payment is mailed to him within 10 business days by the board.
Often FPC and PRO prices are close together, but at times they swing widely apart. Recently the gap has widened, with the FPC on one day at $225 for No. 1 Canada Western Red Spring and the PRO at $209.
“I’d rather have $225 today than $209 later,” said Tjaden Lepp, explaining why she’s urging her firm’s clients to take advantage of the program.
Some analysts fear that today’s high wheat prices might not last. Anderson is a bear.
“In our belief, the board (PRO) price is more of a real world price. That U.S. futures markets are now overbought, to the point that they’re extremely overbought. At some point they’re going to be clattering down,” he said.
But one doesn’t have to be an outright bear to think now is the time to lock in the FPC. Not only is the spread big, but with the program sign-up expiring Oct. 31, farmers have now or never to take advantage of it.
“Now is the time to top it up,” said Melvill. “Now (the crop) is in the bin. You know what you’ve got.”
Melvill said a recent Canada Prairie Spring Red FPC price was $22.81 per tonne above the PRO. That’s 61 cents per bushel and not a spread any farmer should easily ignore.
Farmers can speculate by leaving their wheat in the pool accounts and hoping the PRO rises by more than today’s spread, but that’s a gamble.
“There’s no guarantee of that PRO price. The FPC is a guarantee,” said Melvill.
It’s not too early to start thinking about locking in some prices for 2007-08 through board programs, Melvill said. Those prices might not look as good as 2006-07 prices, but they are good compared to what they will be if the world boosts wheat production because of today’s high prices.
“Those prices are not too shabby,” he said. “I’m not saying you have to do it, but think about it.”
