Farmers
July/August 2004
For farmers wanting to lock in a price for their grain or price their wheat off the futures markets, the CWB's Producer Payment Options (PPOs) can make sense. To increase understanding of the PPOs and see how they could benefit you, John Tencha from Farmer Relations and Operations is continuing the case study below that started in the March/April 2004 issue of Grain Matters. By following this, you can see how western Canadian farmer "Bob" uses the PPOs throughout the year.
Upon our last visit with Bob, we learned that he seeded all 800 acres of his Canada Western Red Spring Wheat (CWRS) and 160 acres of Canada Western Experimental Hard White Wheat. Bob's intention had been to market just 30 per cent of his potential CWRS production towards the Fixed Price Contract (FPC) and Basis Payment Contract (BPC).
If you recall from our previous articles, Bob contracted 115 tonnes towards a fixed price contract in February at $222.79 per tonne. He also contracted
100 tonnes towards a basis contract at $14.47 per tonne over the Minneapolis December 2004 Hard Red Spring futures contract and submitted five 20-tonne target orders to price the futures component of his BPC at different price levels.
Since our last meeting, another one of Bob's futures target orders was reached. On May 4, 20 tonnes was priced at $226.39 Cdn per tonne against his BPC. To date, four of the five targets have been reached.
| Tonnes | Futures target price | Futures settlement price | Date target was reached |
|---|---|---|---|
|
20
|
$210
|
$210.87
|
March 17, 2004
|
|
20
|
$215
|
$220.97
|
March 22, 2004
|
|
20
|
$220
|
$220.97
|
March 22, 2004
|
|
20
|
$225
|
$226.39
|
May 04, 2004
|
|
20
|
$230
|
Not reached
|
Not reached
|
Summary of Bob's contracts to date:
| FPC 115 tonnes: | $222.79/tonne | |
|---|---|---|
| BPC110 tonnes: | 20 tonnes @ $14.47 + $210.87 = | $225.34/tonne |
| 40 tonnes @ $14.47 + $220.97 = | $235.44/tonne | |
| 20 tonnes @ $14.47 + $226.39 = | $240.86/tonne | |
| 20 tonnes @ $14.47 | not filled | |
| Average lock-in price to date: | $227.50/tonne |
* all values in store Vancouver or St. Lawrence
The remaining target order of $230 per tonne is set to expire on the basis month expiry date, November 30, 2004. On this date, all CWB December 2004 basis contracts will expire and the futures will be automatically locked in. If Bob's target is not filled by this time and if he wants to extend the pricing deadline beyond this date, he must roll the remaining 20-tonne December basis contract to the March, May, or July 2005 futures before November 30.
After harvest is complete and Bob is more certain about the quantity and quality of his wheat crop, he will decide how to market the remaining amount. Bob will consider the BPC and FPC values along with the Early Payment Option (EPO). The EPO, which will be available starting August 1, will provide Bob with increased cash flow following delivery, but also functions as a minimum floor-price contract option.
Farm Business Representatives are willing to meet with farmer groups to hold PPO workshops. As well, you can call 1-800-275-4292 for more information on the PPOs.