Attractive new crop price | Open market bids for 2012-13 top current wheat board price offerings
Farmers have a strong incentive to hold old crop wheat over into the new crop year, says a risk management specialist, which will create marketing and logistical headaches.
John De Pape, who publishes the CWB Monitor online commentary, said Viterra was bidding $7.40 per bushel for No. 1 CWRS 13.5 wheat new crop delivery in Saskatchewan on the day following royal assent of Bill C-18.
The Canadian Wheat Board’s Pool Return Outlook for the same wheat is $6.63 per bu. basis Saskatchewan and its fixed price contract for that wheat was $6.19 per bu. as of Dec. 16.
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“The price that Viterra offered gives a large incentive to sell old crop wheat into a new crop position,” said De Pape in a recent commentary.
A grower could receive an additional 77 cents per bu. over selling into the 2011-12 pool and $1.21 per bu. over the fixed price contract.
“Under the current circumstances, (the CWB) could lose a lot of grain into the new crop,” said De Pape in an interview.
If that happened, the CWB would have a tough time meeting customer needs and there could be “burdensome demand” on the grain handling system early next crop year.
De Pape expects the CWB will respond with some mechanism that provides farmers with attractive prices to prevent that situation.
“They would probably be wise to close the pool early and start offering GDC’s (guaranteed delivery contracts) or cash contracts of some sort,” he said.
CWB spokesperson Maureen Fitzhenry said it remains to be seen whether farmers will carry over much of their 2011 wheat crop into the 2012-13 marketing year.
“There will be some farmers who may feel that’s a good option for them and will be in a position to do that and others who will not,” she said.
“We are proceeding as usual with marketing the 2011-12 crop in the way it has traditionally been done and we expect that farmers will continue to participate in our current year program.”
However, the CWB doesn’t plan to offer Series B and C contracts in 2011-12. Those contracts usually have to be signed by Jan. 31 and May 31 respectively.
“The expectation is we won’t have B and C because of moving into the more competitive environment,” said Fitzhenry.
“We had very good sign-up for Series A and expect that (farmers) will be honouring their contract commitments.”
De Pape thinks the lack of Series B and C contracts indicates that the CWB anticipates it will have a struggle competing with the open market in the last half of the crop year.
“I fully suspect that the new board will do something to keep business going for the latter part of the year.”
One option might be for the wheat board to move to an open market sooner than Aug. 1, he said.
“I think they could very easily do that on barley. Maybe not so much malt barley but certainly feed barley.”
Fitzhenry said the board is working on the details of new programs for 2012-13 that it will announce soon.
She wouldn’t provide hints of what is coming, other than that the programs will be competitive with what grain companies are offering and may not resemble what the wheat board has offered in the past.
“Everything will be very different.”
