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Wittal: How to use the CWB EPO program wisely

There are two reasons to use the EPO program.

To lock in a floor price based on the current PRO

The main reason to use this strategy would be because you are concerned that world wheat prices are going to continue to fall and you want to lock in a floor price to protect yourself as opposed to watching the PRO potential erode over the year and taking what is left at the end of the day. Current world carry over stocks are large and new crop production estimates are average to above average for the coming harvest.

Current market sentiment is bearish for wheat and futures are starting to show the stress as they have been sliding the past few weeks as harvest approaches and will continue to do so unless we see some major yield or quality wreck during harvest.

Deciding what level to lock in is always a tough decision. If you decide to do some at the 80 per cent level, let me suggest that you only lock in 25 to 35 per cent of your crop at that level then do some more at the 90 per cent and maybe some at the 100 per cent . The reason being is that if you lock in all of your tonnes at the 80 per cent level, you know you won’t be able to deliver it all right away because of the contract calls and usually as the year goes on Initial prices are increased to or above that 80 per cent level which then means that any tonnes you have not been able to deliver against the EPO you have paid the premium for nothing.  

Now with the new CWB  Grain Flo delivery program you can sign up all of your tonnes to be delivered in 1 of 4 delivery periods, Nov/Dec, Jan/Feb, Mar/Apr, May/June  and if you did that for one of the first two periods then you could sign all of your tonnes up on the 80 per cent EPO if you wanted.   you would receive that value from the CWB within 10 days of delivering your grain to the elevator company,  

To get cash in your pocket more quickly

If you have your grain locked on an EPO then once you deliver the grain and get your cheque from the grain company for the initial price, then within 2 weeks you will receive a cheque from the CWB for the value difference between the initial price and the EPO value that you have locked in. 

More cash for your wheat sooner is a good way to manage cash flow for payments and bills.

It is important to remember that when you use an EPO contract you are still in the POOL. That means that the value that you lock in on the EPO is your guaranteed minimum floor price that you will receive for that grain and if the PRO for that grain finishes above your EPO value you will receive a final payment for the value difference after the crop year is done. 

So the higher an EPO value you lock in the better a guaranteed price you will have but the premium is also higher so you need to do the math to see at what level you would net out better at. 

The premium values for the EPO program change daily and are posted on the CWB website.

Please refer to the CWB web site for more details on this and other programs the     CWB offers.   

About the author

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Brian Wittal

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

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