When initial payments on wheat increased last week, so did the price spreads between grades and protein levels.
For 1 CWRS wheat, the spread between initial payments for 14.5 percent protein and 11.5 percent protein was $24.60 a tonne Aug. 1.
After last week’s adjustment to the initials, the spread was $29 a tonne.
Similarly, the price gap between
1 CW and 3 CW increased to $24 a tonne, up from $11 in the Aug. 1
initials.
For durum wheat, the spread between No. 1 CWAD 14.5 percent protein and 12.5 percent protein increased by $3 a tonne to $22.80.
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Industry officials say the wide spreads reflect the quality of this year’s wheat crop.
“We’re short or tight in the top grades, the ones and twos, and high protein is pretty slim pickings as well, so it commands a higher return,” said Dave Simonot of the Canadian Wheat Board’s sales department.
When the Aug. 1 initials were announced, there was no indication that prairie wheat growers would once again have a troublesome harvest. But rain in August and September resulted in a crop that is estimated to be about 50 percent No. 1 and 2, compared with the long-term average of 65 to 70 percent.
Simonot said the price spreads in the August initials were based on long-term average grade and protein patterns, while also taking into account carryover stocks of low quality wheat.
Glenn Lennox, wheat market analyst for Agriculture Canada, said the spreads shouldn’t be a surprise to anyone who has been following the CWB’s monthly pool return outlooks.
“The PRO has been showing widening spreads since July onwards,” he said, as it became clear that top quality wheat would be in short supply.
While the spreads are higher than normal, they are narrower than last year, when the crop quality was worse.
Meanwhile, the infusion of cash triggered by the adjustment in the initial payment was welcomed by farmers and organizations.
The Western Canadian Wheat Growers Association, however, criticized the amount of time prairie farmers had to wait for the federal government to authorize an increase, which was first requested by the CWB and a number of farm groups two months ago.
Association president Cherilyn Jolly-Nagel said the delay meant farmers unnecessarily incurred interest costs and may have had difficulty making bill payments.
The low initial payments also depressed prices in the domestic feed market, she said, meaning farmers have been receiving unnecessarily low prices on sales of wheat and barley to the off-board feed market.
“This cumbersome and slow process of increasing initials represents a huge cost to farmers, especially when you consider the vast majority of feed barley and feed wheat is sold into the off-board market,” she said.
A number of market analysts interviewed last week said the price impact of the initial payment on the domestic price is not all that great.
“I’m not sure how significant it would be,” said Lennox, saying farmers should be looking at the pool return outlook when assessing their marketing options.
A farmer just looking at the initial wouldn’t deliver to the board, period, he said, because the net return would be so low.
Charlie Pearson of Alberta Agriculture said farmers should look at the CWB’s guaranteed delivery contracts on feed wheat and barley as a welcome opportunity to generate some cash and, perhaps more importantly, ship some hard-to-move grain off their farm.
Simonot said there may be some truth to the suggestion that low initials depress the domestic market, but he thinks the wheat growers association overstates the case.
In parts of the Prairies with high demand for feed grain, there are no sales to the export market and so the board’s prices are irrelevant to the local price. In areas with excess supplies of feed, there is more competition between the two markets.
