Most farmers were too busy, too skeptical or perhaps too bullish to sign up for new pricing options for wheat and feed barley with the Canadian Wheat Board this year.
That’s too bad, say market analysts, who believe farmers missed a good chance to manage some of their cash flow and price risk.
In September, a feed barley minimum price program that gave farmers the choice of early payment appealed to 1,650 farmers who signed up 300,000 tonnes.
That’s less than one third of the feed barley the board hopes to export this year.
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But the feed barley program was significantly more successful than wheat pricing options offered in April, May, June and July.
Farmers signed only 85 fixed price contracts and 125 basis contracts totalling 30,300 tonnes.
To put the low participation in perspective, there were about 110,000 wheat board permit book holders who delivered the more than 22 million tonnes of grain the wheat board managed in 1999-00.
Few follow recommendation
In Calgary, Charlie Pearson was one of the market analysts who this spring recommended clients use the wheat basis pricing option for a portion of their crop.
“It just gives farm managers an opportunity to follow the market,” said Pearson, an adviser with Meyers Norris Penny.
The programs were a chance to establish prices and, in the case of the feed barley program, a good way to improve cash flow in the fall crunch, he said. Pearson is surprised more farmers didn’t look into the options.
“It’s brand new and everybody is hesitant to try something new,” he said.
For high quality wheat, farmers have never before had an option in how they price their crop. The wheat board pools bread wheat returns over the crop year and gives farmers the average price.
Too soon
Many farmers may not have felt comfortable locking in a price or basis before the crop year started, said Lee Melvill, a market specialist with Alberta Agriculture.
Melvill thought the options were a good first step but farmers he works with wanted more information.
“Everybody was so skeptical of it.”
Melvill said the wheat board did not do a good job explaining or promoting the new options.
“A lot of people who are traditional wheat board marketers don’t understand the relevance of Minneapolis futures and they don’t understand the basis,” said Melvill.
The board didn’t provide experienced marketers with the historical information they needed to assess whether the basis contracts were attractive, he said.
Farmers from feed-surplus regions found the barley program more attractive, but Melvill is mystified why more didn’t sign up.
“One has to wonder if (the wheat board) had gotten the million tonnes, could the transportation system take it?”
A University of Manitoba economist who teaches students about risk management said he, too, is a little surprised at the low participation rates.
But Milton Boyd thinks it will take time for farmers to become aware of the new options and understand them.
“They also want to hear other people’s experiences,” he said.
Farmers who predominantly grow wheat might not be as familiar with comparing pricing options and watching markets as farmers who grow a lot of barley, said Boyd.
He believes the prices offered and how quickly farmers get paid will be the main factors determining the success of new pricing options.
