SASKATOON – With the benefit of hindsight, it was an easy decision.
As the crop year wound down in July, prairie farmers had to decide what to do with their last remaining loads of wheat.
Should they sell into the 1994-95 pool in order to avoid the dramatic increase in freight rates going into effect Aug. 1 with the end of the Crow Benefit subsidy? Or should they gamble that higher prices in the coming year would more than offset the freight hike and defer payment into the next crop year?
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Larry Posehn farms near Kronau in southern Saskatchewan and watches the U.S. futures markets closely. He cast his lot with the new crop year. And it looks like it was the right move.
The net return for a tonne of
No. 1 CWRS wheat delivered to the elevator at Kronau will be about $15 a tonne higher in 1995-96 than in 1994-95, based on the latest price projections from the Canadian Wheat Board.
Posehn said it wasn’t a difficult decision for him.
“I felt it was a pretty safe bet,” he recalled, adding that he couldn’t believe it when he heard some well-known market analysts advising farmers to sell their crop into the 1994-95 pool to avoid the freight increase.
“The markets just dictated to me that prices were going to be higher,” he said. “And if an ordinary farmer like myself … can pick up on it, surely these people should have known better.”
Selling offered security
James McIntosh, another Kronau-area farmer, opted to sell most of his wheat into last year’s pool. While in retrospect he probably would have been better off deferring payment, the only thing that was certain at the time was that the freight rate was going up by 60 or 70 cents a bushel.
“It looked like the price was going to go up, but nobody knew for sure,” he said. “And besides, I needed the bin space.”
One market analyst who was advising farmers to sell their crop into last year’s pool was Charlie Pearson of United Grain Growers.
He still thinks that was the right course to follow for durum. This year’s current projected net return (at Kronau) is $202.76 a tonne, compared with $245.77 for the 1994-95 pool. In order to get a higher net return from this year’s pool account, the export price for No. 1 CWAD will have to surpass $275 a tonne (about $7.50 a bushel).
“I think my call was right on durum,” said Pearson. “But on spring wheat, I might have called things a little differently in hindsight.”
Even with spring wheat, he said, the advantage of selling into the 1995-96 pool is much greater in Alberta than Manitoba, due to changes in the freight pooling system.
In any case, said Pearson, farmers should never hold on to board grain in the hope prices will
increase.
Instead, they should deliver promptly so the board can run its sales programs, and if they want to speculate they should use the futures market.
Pearson said prices could be on a downward trend by next spring, depending on the state of the U.S. winter wheat crop and early production prospects elsewhere.
Futures markets already are pointing to lower prices next summer, he added. Last week December wheat was trading at $5 a bushel at Kansas City, while the July futures was $4.28.
