More farmers will be able to take advantage of daily fluctuations in wheat prices under a new Canadian Wheat Board pricing program.
The new program, still unnamed, will replace the daily price contract that has been available for the past three years.
“Farmers want more, not fewer options, which is why we are replacing the DPC with a new program that will be much more accessible to all producers, while more sustainable from a risk-management perspective,” said chief executive officer Ian White.
Like the DPC, farmers will be able to price their contracted wheat at any time during the marketing year.
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Unlike the DPC, there will be no limit on the eligible tonnage.
That tonnage limit – 650,000 tonnes in 2007-08, and 5,000 tonnes per farmer – left many interested producers out in the cold this year. The 2007-08 contract sold out in two hours on the day it became available last June.
“We calculated that only one in four producers who wanted to be in it could actually do so,” said CWB spokesperson Maureen Fitzhenry.
“That’s not a very good model in terms of having an accessible program to meet the needs of a broad number of farmers.”
The final details of the new program aren’t available yet, but in general here’s how it will work:
- Farmers sign up to deliver a specific number of tonnes under the contract.
- The price will change daily to reflect futures markets and actual selling prices.
- The producer can price any amount on any day up to the end of the crop year.
The DPC price was based on prices at a selection of U.S. elevators. That presented a problem because while the DPC price was based on U.S. prices, the board sells 80 percent of prairie wheat outside North America.
The problem was highlighted this year when U.S. futures prices rose to unprecedented levels, reflecting local market conditions but not world market fundamentals.
“We sell into multiple markets around the world, but the DPC program was based on only one market, creating an unhedgeable risk,” said Fitzhenry.
One of the selling points of the DPC was that farmers could get direct access to U.S. prices. That will no longer be the case under the new program, although Fitzhenry said farmers can get an equivalent price depending on how they handle the new contract.
Under the new program the price will be based on the Pool Return Outlook, similar to the fixed price contract. However, instead of using the forecasted futures prices and exchange rates incorporated into the PRO, the formula will use that day’s actual figures.
Fitzhenry added that consultations with farmers in recent weeks have indicated a high degree of interest in the new program.
When the DPC was unveiled in 2005-06, board officials hoped that it would satisfy farmers who wanted to be able to sell their wheat directly to buyers in the U.S. to take advantage of situations where spot prices south of the border were on the rise.
However, those farmers and their organizations have continued their campaign for an end to the board’s single desk, saying the DPC and other contracts are a poor substitute for an open market.
