The owner of a farm marketing company reacted with disbelief and then fury Feb. 12 when the Canadian Wheat Board suspended a contract linked to future prices on the Minneapolis Grain Exchange.
Brenda Tjaden-Lepp, co-owner of Farm Link Marketing Solutions in Winnipeg, was about to execute a contract with the CWB Feb. 12 by pushing the send button on her fax machine when “poof, it’s gone.”
“That’s exactly where we were on Tuesday afternoon when this news came in (that the contract was pulled),” said Tjaden-Lepp, who was still irate Feb. 14.
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The CWB temporarily suspended its basis price contract (BPC) futures lock-in Feb. 12, resuming it the next day. The BPC is a wheat pricing option that offers producers the opportunity to lock in a futures price for the new crop.
Tjaden-Lepp said she had been seeking the best price for her client for the Dec 2008 futures for hard red spring wheat on the Minneapolis exchange, which is the price backing the board’s lock-in contract.
“It’s not been easy to hold off on selling (in this chaotic market). We had two consecutive sharply lower closes – that’s what we were using as our trigger,” said Tjaden-Lepp.
“Our expectation and obviously the board’s was that Minneapolis was going to be locked limit down on Wednesday (Feb. 13) and so they didn’t want to buy any futures from farmers.”
Tjaden-Lepp said the board did what it did because if it had taken her client’s contract, it would be exposed to 60 US cents of risk (daily limit) in the Minneapolis market.
“The way the board pricing program is structured, they take the futures from farmers after the close. So if they took Tuesday night’s close and the market is locked down … they’re on the hook.”
Tjaden-Lepp said she understands that the board has to reduce its risk and wasn’t the only player to withdraw from the market. The Ontario Wheat Board and U.S. elevators also withdrew from the market.
Nonetheless, Tjaden-Lepp said what infuriates her is the board wants to have it both ways.
“They work hard to position themselves as not a private multinational, but when the going gets tough, they do exactly what a private multinational would do,” Tjaden-Lepp said.
“They pulled that program when we needed it the most.”
Wheat futures prices on the Minneapolis exchange exploded during the first two weeks of February. The hard red spring wheat March contract began the month at $14.03 per bushel and went limit up every day, finishing at $18.53 Feb. 14. Minneapolis upped its daily limits on the March contract from 30 to 60 cents Feb. 11, then to 90 cents Feb. 13. On Feb. 15 it closed at $19.35.
The December 2008 futures had a more turbulent ride, starting from $10 Feb. 1, opening at $11.90 Feb. 11 and plummeting to $10.10 Feb. 13 and recovering to $10.45 Feb. 15.
Wheat board spokesperson Maureen Fitzhenry said given the unprecedented market conditions, the board suspended the BPC contract to “ensure that our programs stayed intact.”
“It was a decision we didn’t take lightly,” she said.
“We offer the prices with some certainty that the price offered can be covered in the market. Any commercial entity is going to ensure that it doesn’t leave itself open to risk that can’t be hedged.”
Curt Denisuik, the CWB’s director of commodity risk management, was asked why the board pulled the contract for only one day, given the ongoing volatility in the wheat market.
“In the particular day in question, all the contracts were either down or up 60 cents (the new limit) … and it was unclear if we would have an opportunity to hedge any new sign-ups.”
However, he added, the board wanted to offer the contract as regularly as possible so it resumed the contract.
However, he said it could be pulled again.
“It may be the case that there may be other days like there was on Tuesday,” he said.
Tjaden-Lepp argued that kind of uncertainty is not acceptable.
“We were totally stuck (on Tuesday). It mucks with a marketing plan eight months in the making,” she said.
“Pulling the program screwed us royally. If they’re going to pull these things willy-nilly … how am I supposed to develop marketing plans?”
