With up to a quarter of this year’s Prairie wheat harvest potentially going feed-grade, the Canadian Wheat Board will offer farmers an option to immediately lock in a feed wheat price.
The CWB on Monday said it will offer a feed wheat pricing option using its Early Payment Option (EPO) “as a means of striving for the highest returns for feed wheat from the current market environment.”
EPOs are meant to provide cash flow shortly after delivery for eligible wheat and barley grades and create a guaranteed floor price for a Prairie grower’s grain.
But where the EPOs for milling wheat, milling durum and other eligible grades allow a grower to lock in an early payment value (EPV) equal to 80, 90 or 100 per cent of the board’s pool return outlook (PRO), the new feed wheat EPO contract will allow growers to lock in an EPV equal to 80, 90, 100, 125, 150, 175 or 200 per cent of the PRO.
“The significant amounts of feed-grade wheat produced this year, combined with a strong market for feed grains, means that the CWB is able to offer higher levels of cash flow and price guarantees through new higher-level EPOs,” the board said of the EPO levels higher than 100 per cent.
Where over 70 per cent of Prairie spring wheat usually grades Nos. 1 or 2, only 38 per cent is expected to grade Nos. 1 or 2 this year, the CWB said, putting about 35 per cent of the wheat crop into No. 3, with 25 per cent as feed.
“Not since the cold summer and wet harvest of 2004 has the CWB expected such a high volume of feed wheat,” the CWB said.
If a feed wheat producer believes the market is going higher, the board said, “the best choices are those options that allow you to capture that upside.” Such options would include:
- remaining in the pool, which would provide an average of market returns, including any upside yet to come;
- an 80 or 90 per cent EPO, which would keep most of the same upside as the pool while providing more cash flow on delivery; or,
- if a grower is “very confident of higher prices to come,” he or she could wait and choose a 200 per cent EPO or (Fixed-Price Contract, or FPC) when he or she believes prices are at or near a peak.
But a grower who expects the market to decline from current levels would most likely want to lock in the highest price he or she can today, meaning the 200 per cent EPO or an FPC.
A 200 per cent EPO could go to lock in the minimum guaranteed price on feed wheat a farmer still has to deliver, while an FPC can be used to settle feed wheat deliveries already made, the board said.