It may not make prairie farmers feel better, but market analysts say the low initial prices announced last week may already be outdated.
“Prices are a lot stronger now than when the analysis was done for the initial payments,” said Glenn Lennox, wheat market analyst for Agriculture Canada.
Those payments were calculated in early July, when the bottom was falling out of world cereal grain markets. In recent weeks the price outlook has improved considerably, with U.S. nearby futures prices for spring wheat climbing $25 a tonne.
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federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
That could provide some quick relief from the bitter price pill announced last week.
“Assuming prices stay where they are or rise in the U.S. market, then farmers could look forward to adjustments to these initials fairly early in the crop year,” said Lennox.
Will ask for more
Canadian Wheat Board chief commissioner Lorne Hehn wasn’t making any promises last week, but he did say the board will ask the federal government to increase the initials as soon as market conditions warrant.
A market analyst at the board said there is a good chance prices will improve.
“The outlook is much better than it was three weeks ago,” said Peter Watts.
Hehn said he’s not surprised that farmers are disappointed and angry at the new initial prices.
“The marketplace just isn’t giving us the returns we would all like to see,” Hehn said
But he also urged farmers to look at the pool return outlook, not the initial payment, when forecasting income for the coming year: “That’s what reflects the reality of the marketplace.”
The latest PRO for No. 1 CW red spring wheat is $162 to $192 a tonne, for a mid-range price of $177 a tonne (basis export position.) The initial payment of $130 represents 73 percent of that mid-range price.
While all that may be true, it doesn’t do much to lessen the blow for farmers like Terry Fletcher, who will be facing a drastic reduction in cash flow for the next few months.
“With the prices down and the yields down and inputs more expensive, it’s just going to make it that much tougher,” he said from his farm at Conquest, Sask. “There will definitely be a cash squeeze because we get all kinds of bills in the fall.”
The new initial for No. 1 CW red spring wheat is $130 a tonne. Once freight and handling charges are deducted, that leaves farmers with take-home pay of about $85 a tonne, or $2.30 a bushel.
A year ago the initial opened the crop year at $190 and was eventually increased to $200 a tonne.
Analysts say the $60 a tonne drop from last Aug. 1 is misleading, because the price was set much too high a year ago.
Initial payments are traditionally set at 70 to 75 percent of the expected total return for the year. However, last year’s Aug. 1 initial of $190 represents about 92 percent of the estimated pool return of $206 a tonne for 1996-97.
The Western Canadian Wheat Growers Association said the big drop in payments shows the marketing system isn’t working. It says farmers should be allowed to market their own wheat and use futures markets and other methods of managing risk.
“There are opportunities in the marketplace every day and we need those tools at our disposal,” said association chair Kevin Archibald.
Board supporters like National Farmers Union president Nettie Wiebe said it makes no sense to blame the wheat board system for fluctuations in world markets.
“The best risk management tool we have is the CWB pooling of prices over the year and ensuring we get that money and not some trader,” she said.
Grain trucks were lined up at the Ag Pro terminal in Saskatoon and at elevators at many delivery points on July 31, the last day of the crop year. Farmers wanting to deliver where the elevator is full can get an extension to Aug. 22 but must apply for deferred delivery. A list of initial prices for the 1997-98 crop year appears on page 11.
Fight for stability puts farm on shaky ground
By Roberta Rampton
Winnipeg bureau
news
TEULON, Man. – When Ron Drohomereski recounts how 333 farmers won the war for supply management powers in the free-trade-friendly 1980s, he likes to remember the funny parts.
He led the struggle for stability for broiler hatching egg producers, who sell fertilized eggs to hatcheries.
There was the time, for instance, when he set loose dozens of fluffy yellow chicks in a parliamentary room where news conferences are held. It was the week before Easter, impeccable timing to explain how cheap U.S. imports were hurting farmers like him.
“I guess those were my five minutes in the limelight,” he said. “I made all three national networks that night.”
But Drohomereski stops chuckling when he talks about how he lost his own battle for the farm he wanted to pass down to his kids.
He started out in the hatching egg business with 300 hens in a quonset, earning a bit of extra money in the winter. By 1978, he had specialized, building two new barns to house 5,000 hens, and delivering to a large hatchery.
Don’t join association
He remembers the hatchery manager offering to double the two cents per dozen paid for freight if he didn’t join an upstart producers’ association.
Instead, Drohomereski became a director of the new group, and later the first chair of the Canadian Broiler Hatching Egg Marketing Agency.
“Our prices were low, American imports were coming in, and when we asked for a price increase, we were always given this American price,” he recalls.
Drohomereski spent years traveling across the country and the world to make supply management happen, refusing to take no for an answer, lobbying for a system he supported.
It was an uphill struggle. Politicians and bureaucrats were thinking about free trade, not building new walls to keep U.S. products out of Canada.
Today, farmers in the business largely agree they’re better off because of supply management, although the spectre of the massive U.S. hatching egg machine still looms large.
And while farmers can now negotiate supply and price with hatcheries, some say the hatcheries still have the upper hand because they determine when farmers get chicks and how long they keep them.
When his hatchery cut off his flock in the middle of production, Drohomereski was forced to declare bankruptcy in 1991.
He sued the hatchery for breach of contract. The matter is still before the courts.
Today, his barn doors stand open, next to a greenhouse where he grows and sells herbs. The only contact he has with the industry is the Christmas cards he gets from people he used to know. But he feels good about what he helped accomplish.
“You hope that you can improve the lot of your fellow producers in some way,” he explains. “But you never get the whole enchilada.”
