The Canadian Wheat Board has asked the federal government to give farmers a break when it comes to repaying their cash advances this year.
It wants Ottawa to extend the default date on 2004-05 cash advances to November from Aug. 19.
The request, made in a letter to agriculture minister Andy Mitchell, reflects concerns that farmers with bins full of feed wheat could have trouble repaying their cash advances.
“We have asked the minister for some consideration because of the unusually high stocks of feed wheat,” said Ed Thomas, who manages the cash advance program for the board.
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Delaying the default date will enable farmers to blend stocks, use new crop or take advantage of stronger markets this fall to repay their advances.
The 2004-05 cash advance on wheat, which must be repaid through deliveries, is $80 a tonne.
But feed wheat, which for many farmers makes up the bulk of their stocks, isn’t worth that much.
Feed wheat sold through the board fetches an initial payment of $35 to $40 a tonne, after transprt and handling depending on location, with an expected final price of around $70 a tonne.
The off-board market, including sales to elevators and feed mills, is also garnering prices below the $80 advance rate.
“As the rules stand right now, the farmer is a bit between a rock and a hard place,” said Agriculture Canada market analyst Glenn Lennox.
“He doesn’t want to sell the wheat because it’s worth less than the advance, but come August he has to pay the advance back. If he doesn’t sell the wheat to do it, he gets dinged with interest from the date he got the advance.”
The $80 per tonne advance on wheat was set in July 2004 and based on half of the expected return from the predominant grade, in this instance No. 1 CWRS 12.5 percent protein.
When the rate was set, no one foresaw the early frost and harvest problems that left farmers saddled with eight to nine million tonnes of feed wheat, representing 40 percent of the crop.
Farmers such as Mike Halyk of Melville, Sask., have nothing but feed wheat in their bins.
He said he knows of farmers who hauled all their wheat and ended up owing money on their cash advance.
“It’s definitely not an incentive to deliver,” he said, adding farmers don’t have the cash to pay off the difference.
“This is a huge, huge issue out there for many farmers.”
Thomas said once the board became aware of the extent of the crop damage in the fall, it sent out a notice reminding farmers that they should take into account the value of their grain when applying for an advance.
“We know some farmers took less than the maximum, so for some this will not be an issue,” he said.
At the end of the day, he added, the onus is on the farmer not to take an advance greater than he can expect to repay through grain deliveries before the end of the crop year.
For those who are in a bind, several options are available:
- They can pay off the feed wheat advance with deliveries of higher value grains.
- They can have the recently announced adjustment payment applied against their cash advance without penalty.
- If they have delivered all the grain on which their advance was based and there is a shortfall because of low prices, they can pay that off in cash, again without penalty.
Typically, cash repayment of an advance is limited to $500 or 10 percent of the value of the advance. Any cash payment beyond that carries an interest penalty.
Thomas said he hasn’t had many calls from farmers on the issue, although he acknowledged that could change as the year progresses.
“We don’t know at this point how many farmers might be affected,” he said.
