Payment options attract a minority of producers

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Published: November 1, 2001

Only about one percent of Canadian Wheat Board permit book holders opted out of the 2001-02 pool accounts by taking out a fixed price or basis contract.

But judging by the board’s latest pool return outlook, those who locked in a price at the right time last spring are probably glad they did.

“From what we know today, people who priced a fixed price contract early on were able to get a better price,” said Charlie Pearson, a market analyst for Alberta Agriculture.

Farmers took out 974 fixed price or basis contracts for 2001-02. That’s almost five times as many as last year, but still represents only about one percent of the 97,000 CWB permit books in circulation.

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It’s still early in the crop year and the pooled price that farmers will eventually get remains to be seen. But at the moment, said Pearson, it seems like the wheat market’s best days are behind it.

“Wheat prices have slipped lower and lower and lower,” he said. “So far it looks like the individuals who jumped on the bandwagon early probably will do better than the pool.”

According to the Oct. 25 PRO, farmers can expect a pooled price of $209 a tonne for 1 CWRS 13.5 percent protein wheat this year. (All prices are basis in-store export position.)

By comparison, the fixed price contract hovered around $220 a tonne throughout April, peaking at $223.81 on April 18.

At that time the PRO was $224 a tonne, reflecting a more optimistic outlook for 2001-02 returns than is now the case.

However there were also times during the four-month sign-up period when the fixed price contract slipped below the current $209 PRO.

On June 25, the contract bottomed out at $200.26 a tonne. Farmers who signed on at that price could end up faring worse than those who stayed in the pool.

Fixed price contracts were introduced by the board last crop year in response to calls from some farmers and farm organizations for more pricing flexibility on sales of CWB grains.

Farmers can lock in either a price based on the PRO less carrying charges and administration, or a basis reflecting the difference between the PRO and the futures price on the Minneapolis Grain Exchange.

Last year farmers took out 86 fixed price and 129 basis contracts. This year the numbers are 531 and 443 respectively.

Board officials say the increase reflects the fact that the contracts are available on more classes and grades of wheat this year, as well as increased familiarity with the programs.

CWB chair Ken Ritter said the sign-up rate is in line with the agency’s expectations.

“I think as more and more farmers have more experience with both of the contracts, they will look at them as serious management tools in running their operations,” he said.

But Ritter said the numbers also send a strong message that price pooling is the preferred risk management tool for most producers.

“Obviously the vast majority of farmers have still chosen to stay in the pool accounts, which is a risk management tool as well.”

The board says it simply offers the payment options, and it is totally up to individual farmers whether to participate, based on their own farm management needs.

Under the basis contract, the highest basis available for the December futures contract was $19.92 a tonne and the lowest was $16.07 a tonne.

Based on the Oct. 29 Minneapolis December price of $184.58 a tonne, the highest possible price under the basis contact that day would have been $204.50 and the lowest $200.65. Both are below the current PRO of $209 a tonne. However the basis contract can be rolled over to another month.

The board also offers an early payment option, under which growers of soft white spring and red winter wheat can lock in a price equal to 90 percent of the PRO. They remain in the pool account and receive interim and final payments. So far 70 farmers have signed up. The deadline is Nov. 30.

Barley growers can also get guaranteed delivery contract with an early payment option. Four contracts have been signed to date, with a Nov. 30 deadline.

Pearson said there is plenty of room for improvement in the board’s payment options.

“It’s still not a real market in most people’s minds,” he said.

But perhaps their most attractive feature, he said, is that farmers can get paid sooner rather than later.

“For a lot of farmers, that’s a pretty critical issue, to get some cash flow in a year when cash is really tight.”

About the author

Adrian Ewins

Saskatoon newsroom

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