The failure last fall of wheat and durum initial payments to keep up with the quickly rising international price was vexing for farmers.
Wheat and durum delivery produced little money to meet cash flow needs because of the low initial payment.
With canola rising in step with global oilseed prices, the market appeared to be signaling that it would better for farmers to sell canola. But as farmers pushed excess canola into the system, it allowed buyers to widen their basis, reducing farmers’ take-home pay.
Read Also
Alberta crop diversification centres receive funding
$5.2 million of provincial funding pumped into crop diversity research centres
Yet the global market did need durum and wheat and was paying strong prices. The rising monthly Pool Return Outlook signaled this, but the cash reward was delayed until the authorities got around to raising the initial payment.
The Canadian Wheat Board encouraged farmers to deliver, especially to fill durum sales. But for some, there is no encouragement as strong as cash in hand at delivery.
The time needed to increase the initials appears unnecessarily long in context of the robust grain market rally, sparked by the Russian drought and sustained by solid demand.
Part of the delay was linked to the CWB recommending an increase on Sept. 3 and then revising it upward on Sept. 29. Even then, it took until Nov. 26 to get an increase.
The federal government guarantees initial payments. Three ministries are involved in setting them – agriculture, finance and treasury – and they appear exceptionally cautious.
The initials posted Aug. 1 are based on the CWB’s May PRO. The base grades of spring and durum wheat were about 64 percent of the PRO at that point.
By the release of the September PRO, No. 1 CW Red Spring wheat had risen to $270 per tonne, so the initial payment represented only 45 percent of the PRO.
There was little risk in approving an increase, but it still took two months.
There are now two proposals to change the way initial payments are approved. CWB chair Allen Oberg says the organization has a proposal to increase its responsibility. The federal government would still set and guarantee the Aug. 1 initial, but the CWB would set adjustments, interim and final payments and guarantee them through is contingency fund.
The other proposal is in the government’s Bill C-27, legislation amending the wheat board act that would change voter eligibility in CWB elections and speed initial payment changes by removing Treasury Board approval.
The opposition rejects the legislation because of their objections to changing the voter eligibility provisions so it has little chance of moving forward in this minority parliament. The board’s proposal does not need legislation and could be implemented more quickly.
The CWB board should draft a formal proposal, laying out how it would provide more timely increases and manage the risk involved, to present to federal wheat board minister Gerry Ritz.
There have been only four instances where a misjudgment on the initial has caused one of the pools to incur a deficit, but the risk remains.
Indeed, the risk is increasing as grain markets become more volatile because of tight global food supplies and the growing involvement of investment funds in agricultural markets, which can exaggerate price moves.
Economic and political factors outside of agricultural markets can also create wild swings in grain prices.
But with appropriate safeguards, the CWB should be able to handle this new responsibility and the minister, who has stated he wants to speed payments, should look favourably upon it.
Bruce Dyck, Terry Fries, Barb Glen and D’Arce McMillan collaborate in the writing of Western Producer editorials.
