Anyone who was surprised by the new initial payments hasn’t been paying attention, says a grains market analyst.
“They came in right where I was expecting them and anybody who wasn’t expecting them there probably wasn’t doing their homework,” said Paul Cassidy, president of Mitcon Ltd. of Calgary.
The announcement that 1997-98 initial payments would be down substantially from last year triggered public expressions of shock and anger from some farmers and farm organizations.
A number of market watchers said last week that while farmers are understandably disappointed and worried about the lower prices, the Canadian Wheat Board’s monthly pool return outlooks provided ample warning that payments would be down substantially.
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“The initials should not have come as too great a surprise because we’ve had the PROs pointing that way since spring,” said Dan Schmeiser, an economist with Saskatchewan Wheat Pool.
The first PRO for 1997-98, released by the board in February, forecast a price of $160 to $190 a tonne for 1 CWRS, for a mid-range price of $175 a tonne.
Assuming an initial payment of 75 percent of the expected total return, a farmer could have figured on an initial of $131 a tonne. The new initial is $130.
For barley, the February PRO pointed to a 1997-98 initial payment of $94 a tonne, while the actual initial is $95.
The PRO was bumped up in April, then declined the next two months and by July was back at the February level.
However, Schmeiser said he sympathized with farmers’ reaction to the new initials, which he characterized as a “very very poor price.”
It’s one thing to look at numbers and calculate what the initial payment might be, he said. It’s quite another when the reality hits home and the cheque at the elevator shrinks to $2.20 a bushel.
One analyst who admitted to being surprised was Fred Siemens of Palliser Commodities Corp., who said the feed barley payment was lower than he expected.
“Everybody called them down, but I think they were down probably $5 or $10, if not more, than everybody thought they would be,” he said, adding the current market outlook would definitely support a higher initial.
The Canadian Wheat Board’s toll-free line received 2,798 calls from farmers the week ending Aug. 1. Some were asking questions about the new prices, some wondering if they could deliver at the old price and some venting their displeasure.
CWB information officer Rhea Yates said the board’s message to farmers is that this is only the initial payment and it will be increased if markets dictate.
“If there’s cause to be raising them, we will,” she said, noting there were five such adjustments in the 1995-96 crop year, the first on Oct. 20.
Board officials and most analysts also are reminding farmers to look at the PRO, not the initial, when assessing price prospects for the coming year.
Siemens said he understands why farmers seem more focussed on the initial payment.
“The PROs are definitely encouraging, but the fellows I talk to say ‘we want something we can take to the bank.’ “
As for farmers wanting to sell into the 1996-97 pool accounts, that’s only possible if they have a CWB delivery contract and their local elevator hasn’t yet closed its books.
One CWB area representative in Saskatchewan said he had received a call from a farmer with 4,000 bushels (about 110 tonnes) of wheat and no CWB delivery contract asking if he could sell at last year’s initial price.
