The Western Canadian Wheat Growers Association and the Canadian Wheat Board are at odds again, this time over the board’s forward pricing contracts.
The association has taken the board to task over earnings generated from hedging activities related to the contracting program.
It says the board shortchanged farmers who took out contracts by putting some of those earnings into the pool accounts rather than giving it to contract holders.
“If there’s a refund, it should be reimbursed to those who made the excess contribution,” said WCWGA executive director Blair Rutter.
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However, the board said the association is misrepresenting the situation.
Money earned through the board’s risk management strategy doesn’t belong to farmers who took out the contracts, said Adrian Measner, the board’s chief executive officer.
“There is no ownership of that money, other than the organization.”
Farmers took out contracts for certain prices based on market conditions, were paid in full and no more money is owed to them, he added.
According to the board’s annual report, the marketing agency earned $31.8 million in 2004-05 as a result of hedging activities related to its fixed price and basis contracts.
The board’s policy is to put those earnings into a contingency fund, which is designed to cover hedging-related losses that might be incurred in future years.
However, by law that fund can’t exceed $50 million and so the marketing agency was unable to put all of its
2004-05 earnings into the fund.
It deposited the surplus $7.5 million into the pool accounts, to be distributed among all farmers in the pool.
“There were only two legal courses of action we had,” Measner said. “Either to the contingency fund or paid out to the pool account.”
The board has asked the federal government to double the contingency fund limit to $100 million and hopes that will be done by the end of this crop year.
Measner said the board’s risk management strategy is to break even over the long term on its hedging activities, but the nature of the markets in 2004-05 was such that it generated significant earnings
“This year everything worked in our favour,” he said. “The basis actually widened out and the futures market dropped, so the f.o.b. values stayed up there but there was tremendous gains on the futures side.”
Rutter said the association has no quarrel with the contingency fund but believes the board deliberately discounts the prices available under the forward contracts to keep those prices in line with pool returns.
“Basis levels have been set where the CWB takes excess protection, which has led to the increases in the contingency fund,” he said.
Measner insisted that’s not true.
“We take a risk premium as any organization would when offering price options like these,” he said. “But we’re not taking any undue amount; we’re very diligent about that.”
The wheat growers also say farmers have often complained that the basis levels in the board contracts don’t reflect a true open market basis.
Board officials say they have received few complaints about the contracts, which have increased in popularity for 2005-06.
