REGINA – Prairie farmers pocketed a record $91.6 million in net interest earnings from the Canadian Wheat Board last year.
That works out to an additional $4.86 a tonne on the 18.8 million tonnes of wheat, durum and barley delivered to the board by farmers in crop year 2001-02.
Net interest earnings normally go directly into the pool accounts and are paid out to farmers.
The record interest earnings were due in large part to unexpected changes in financial markets brought about by the terrorist attacks on the United States in September 2001.
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“After Sept. 11 happened, interest rates fell in a very unexpected and unforecast way to unsustainable levels for about six months,” CWB treasurer Wendi Thiessen said in an interview after speaking at a wheat board district meeting last week.
If not for the financial fallout from the terrorist attacks, interest earnings would probably have been around $75 million, which would still have been well above the normal range in recent years of $60-$70 million.
“Interest rates were declining in July and August (2001) so we knew we were going to have a higher than average year for interest earnings,” said Thiessen. “But we got an extra kick because of what happened on Sept. 11.”
She said interest earnings will likely return to a more normal level of around $60 million for the 2002-03 crop year.
At first glance it may seem odd that lower interest rates would result in record interest earnings for the board.
But the board’s net interest earnings reflect the spread between the low interest rates it pays and the higher interest rates it earns on debt owed by customers like Poland, Russia, Pakistan and Zambia.
The board engages in short-term borrowing, so the rates it pays are reset every one or two months.
By contrast, the rates charged to its credit customers are higher and are generally locked in for terms of six months or more. So during a period of declining interest rates, the amount paid out by the board declines more quickly than the interest payments it collects on its assets.
The board has about $7 billion in accounts receivable on old grain sales. Based on an interest rate spread of one percentage point, that produces annual interest earnings of $70 million.
However, Thiessen said those earnings will begin to decline if the board’s debtors remain current in their debt repayment plans and reduce the principal owing.
Assets of $6 billion would translate into earnings of $60 million, $5 billion would produce $50 million in net earnings and so on.
Assuming that all those countries stay on track with their payments – something Thiessen described as a “significant” assumption – the board’s net interest earnings will decline to about $25 million by 2008-09.
She added the board’s policy is to negotiate the highest interest rate possible from customers in order to maximize revenue for the pool accounts, although terms vary considerably among customers.
The board also earns interest on pool account balances over the course of the year and on delays in the receipt of proceeds from non-credit sales. It pays interest to finance treasury fees and bank charges.
Interest earnings from pool accounts have declined in recent years as the board has paid farmers more quickly, thus reducing the interest-earning balance.
Net interest earnings by pool account in 2001-02 were: wheat $69.7 million or $5.23 per tonne; durum $11.9 million or $3.69 per tonne; designated barley $2 million or 92 cents per tonne; feed barley $7.9 million or $145.54 per tonne.
The extremely high per tonne payment for feed barley reflects the small size of that pool and the high accounts receivable from old sales. Only a portion of the money was paid to farmers, with the rest going into a contingency fund to be used for as yet undetermined purposes.
