Jury still out on CWB’s new wheat contracts

The jury remains out on the CWB’s recently-introduced pricing options for marketing Prairie wheat, according to industry analysts who say they see too many unknowns with the contracts to recommend them to farmers.

A federal government bill passed in December 2011 will see the CWB lose its long-standing single-desk marketing powers for Prairie wheat, durum, and barley as of Aug. 1.

The CWB will continue to operate in the open market in a voluntary capacity, having officially launched pooling and cash contracts last Thursday (March 29).

Reid Fenton of BLB Grain Group at Three Hills, Alta., said it was good to see the CWB adjusting to the new reality, and noted the cash contracts were an improvement on previous options from the board.

However, with only Cargill and South West Terminal having reached handling agreements so far with the CWB, the lack of line company participation is a significant drawback.

“The proof will be in the pudding,” said Fenton, adding that the harvest and early delivery pool options were hard to commit to without a clearer price indication.

At present, the overall mentality in the Prairie wheat market could be best described as “cautious” and Fenton expected many farmers would end up pricing at least a portion of their wheat through the CWB, given the comfort level of dealing with the board.

However, at the same time, producers are also getting more comfortable with the forward pricing options coming out from the line companies.

The CWB contracts are a good start, but are still far away from providing “a full enough picture to be able to work with.” according to Winnipeg analyst Brenda Tjaden Lepp of FarmLink Marketing Solutions, who added there are still “more questions than answers.”


Cash price signals offered from the CWB are currently only for “in-store” at the Thunder Bay and Vancouver ports, both far away from the farmgate. Without knowing the back-off to Western Canada, Tjaden Lepp said the prices did not yet provide a clear signal for producers.

Also, while the CWB is said to be working on reaching agreements with other grain handlers, Cargill and South West Terminal on their own do not provide enough coverage across Western Canada to make a CWB contract workable for many producers.

“It’s essentially gone from a wheat board monopoly, to a Cargill/CWB monopoly — with the choice to deal with the monopoly or not,” said Tjaden Lepp.

Given the continued uncertainty with regards to new-crop pricing, if a farmer is intent on growing wheat and is uncomfortable with not having something priced, Tjaden Lepp said the best option was to open an account with a broker, and accomplish new-crop risk management through futures and options.

The ICE Futures Canada milling wheat futures contracts are still lacking liquidity, which places Minneapolis spring wheat contracts as the best corresponding futures to the Canadian crop.

However, Tjaden Lepp said farmers in Western Canada would be much better off with a Canadian-based contract, as the price signals would be clearer, and factors such as currency, quality specs and transportation would be easier to account for.

Farmers would do well to push for contracts based off the Canadian futures, she said, as that would encourage the grain companies to use them as well.

Related story:
Enrolment opens for CWB’s new-crop programs, March 30, 2012

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