If the Canadian Wheat Board’s 2002-03 wheat pool account goes into a deficit, one culprit will stand out above all others.
The strong Canadian dollar.
The unexpected rise in the loonie has eaten away at the value of the wheat sold by the board in recent months.
“If the dollar had stayed at 65 cents, you’d probably have a $15 a tonne surplus in that pool yet,” said Glenn Lennox, wheat market analyst for Agriculture Canada.
Instead, the pool account is teetering on the edge of a deficit, with the latest pool return outlook for No. 1 CW red spring 14.5 percent wheat only $1.25 a tonne above the initial payment of $256.75 a tonne.
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The dollar has risen from 64 cents US in late October to just under 75 cents.
That means a tonne of high quality wheat sold by the CWB to a foreign buyer for $175 US on Oct. 28 would have put $273 Cdn into the pool account.
That same tonne of wheat sold to the same buyer in mid-June would have fetched just $233 in Canadian funds.
CWB chair Ken Ritter said no one foresaw the increase in the dollar when the initial payment was set at its current level last November.
“It was completely unpredictable.”
While analysts agree the board couldn’t have been expected to foresee the rise in the dollar, some say the agency should have done a better job protecting the pool accounts by hedging on the international currency market.
“It’s a problem of their own making,” said Larry Weber of Weber Commodities Ltd.
“To not hedge those dollars properly is no better than what a farmer could do.”
A board spokesperson said the agency does use risk management tools to protect itself from fluctuating exchange rates, but the change this year was so dramatic and unexpected that total protection was not possible.
The rising dollar wasn’t the only unexpected event that played havoc with the board’s price expectations for 2002-03.
When the initial payment was bumped up to its current level last fall, everybody was expecting wheat prices to remain strong based on tight world supplies of milling wheat.
But much to everyone’s surprise, wheat producing countries in the Black Sea region such as Russia and Ukraine put large volumes of low quality wheat on the market, driving down prices.
Charlie Pearson of Alberta Agriculture said while that was a surprise, in retrospect the board may have acted too quickly when it raised the initial payment in November.
“I think maybe they were a little over optimistic then and in some sense they’re paying the price now,” he said, adding the lesson to farmers should be to use risk management tools, including the board’s pricing options, to lock in good prices rather than rely totally on the pooling system.
