Farmers
March/April 2004
Some farmers have told us they find the CWB's Producer Payment Options (PPOs) hard to understand. 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. To increase understanding of the PPOs, and see how they can benefit you, John Tencha from Farmer Relations and Operations is starting the case study below that will be continued in future issues of Grain Matters. By following this, you can see how western Canadian farmer Bob uses the PPOs throughout the year.
Bob will seed 800 acres of Canada Western Red Spring (CWRS) wheat and 160 acres of Canada Western Hard White wheat under a CWB Market Development contract, along with
a variety of non-Board crops.
Bob is familiar with non-Board basis and fixed price contracts. He knows that he has production risk, and realizes the consequences of not being able to fill these contracts, so he decides to forward contract no more than 30 per cent of his upcoming production before harvest.
Based on his long-term average spring wheat yield of 33 bushels per acre, Bob thinks he should commit 8,000 bushels (about 218 tonnes) of his red spring wheat to the CWB's Fixed Price Contract (FPC) and Basis Payment Contract (BPC) programs before harvest. Because this is his first year of growing hard white wheat, he decides not to sign up any production under an FPC or BPC program at this time.
The 2004-05 BPC and FPC programs begin on February 27, 2004. On that day, Bob visits the CWB Web page and found that the December CWRS basis price is set at $14.47 per tonne over the Minneapolis Hard Red Spring wheat futures. The futures close at $208.32 US, netting a fixed price of $222.79 Cdn per tonne in store. Bob considers production costs, breakeven prices, current market forecasts, nearby and forward futures values for 2004/05, historical Minneapolis futures values and the CWB Pool Return Outlook (PRO). After taking these market signals into account, Bob decides the fixed price and basis offered are at reasonable levels for pricing a portion of his production. By doing so, he hopes to generate increased cash flow at harvest.
Bob signs up the following contracts:
115 tonnes FPC at $222.79 per tonne; and 100 tonnes BPC at $14.47 per tonne.
He also faxes in five target price orders with a 60-day expiry to price the futures component
of his basis contract at the following levels:
20 tonnes at $ 210;
20 tonnes at $ 215;
20 tonnes at $ 220;
20 tonnes at $ 225; and
20 tonnes at $230.
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.