Canadian Wheat Board

Newsroom

2010

Longer period for farmers to choose their own wheat prices

February 11, 2010

Winnipeg - Prairie producers will now have the option of locking in their own wheat and durum prices throughout most of the year.

In response to farmer input, the CWB has extended the sign-up period for two major Producer Payment Options, giving participating producers more time to assess harvest and market conditions before making pricing decisions. For 2010-11, sign-up deadlines for the Fixed Price Contract (FPC) and the Basis Price Contract (BPC) will be January 31, 2011, three months later than previously.

"Farmers asked for increased pricing flexibility through these programs," said CWB president and CEO Ian White. "This enhancement means they will have more time to make informed choices for their business."

Sign-up for the 2010-11 FPC and BPC programs begins Feb. 22, 2010, with the release of the first CWB Pool Return Outlook for the new crop year. Producer Payment Options were created for use by farmers who want to manage more of their own price risk. First offered in 2001, they have been improved and enhanced each year in response to farmer feedback and market conditions.

The FPC offers producers the ability to set a flat price that can be locked in any day between Feb. 22, 2010 and Jan. 31, 2011. The price is set daily, based on the average price of western Canadian wheat already priced for sale by the CWB and the current market value of wheat yet to be priced. As the crop year progresses and an increasing amount of wheat sales are priced, the FPC values will adjust accordingly, since they reflect returns from actual CWB sales made throughout the year.

The BPC offers farmers the ability to lock in a total return for wheat by pricing basis and futures values separately. The futures component can be priced up to a year in advance of harvest. An adjustment factor is applied at sign-up to reflect sales that have already been priced by the CWB.

Among other new PPO enhancements, producers can now apply previous deliveries to the pools to an FPC or BPC at the time of sign-up. In addition, on a basis-first BPC, farmers now can roll the basis between futures months as they become available. In September 2009, the basis lock-in deadline was aligned with futures lock-in so that both are priced by the basis contract month expiry. The buy-out formula was also simplified.

Program details and sign-up periods and a new PPO Primer page, are online at www.cwb.ca/ppo. The CWB also publishes a weekly e-newsletter dedicated to PPOs. Producers can sign up for the PPO Updater by going to cwb.ca and clicking E-mail updates at the top of the page. Free online training is also regularly available. In addition, PPO program service representatives are based in each Prairie province to answer questions or host workshops on PPOs. Later this month, a new "PPO Dashboard" feature with current market prices and information will be launched on the CWB homepage.

Controlled by western Canadian farmers, the CWB is the largest wheat and barley marketer in the world. One of Canada's biggest exporters, the Winnipeg-based organization sells grain to over 70 countries and returns all sales revenue, less marketing costs, to farmers.

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For more information, please contact:
John Lyons
CWB media relations manager
Tel: (204) 983-3101
Cell: (204) 223-4281
john_lyons@cwb.ca

A PPO glossary

Adjustment Factor: adjusts Fixed Price Contract (FPC) and Basis Price Contract (BPC) values at time of sign-up to reflect wheat that has already been priced for sale by the CWB. The adjustment factor is built into the FPC value, and applied to the BPC when farmers price the first component, starting Aug. 1.

The adjustment factor calculation includes the percentage of wheat currently priced by the CWB, the average price achieved on that wheat and the current market value of unpriced wheat. The current market value is determined by taking the weighted average of current prices available to the actual shipping periods and destinations that the CWB expects to sell into for the remainder of the sales period. (This current market value is the price offered under FlexPro.)

As the sign-up period progresses and more wheat is priced, the percentage of wheat priced and the average price achieved represent a larger portion of the calculation. The adjustment factor is negative if past sales are priced below the current market value, and it is positive if past sales are priced above the current market value.

Basis Price Contract (BPC): a pricing alternative that offers farmers the ability to lock in a total return for wheat by pricing basis and futures values separately. The futures component can be priced up to a year in advance of harvest. An adjustment factor is applied when farmers sign-up to reflect grain sales that have already been priced by the CWB, an amount that increases as the year progresses and sales are made. On the 2010-11 BPC, futures sign-up began Sept. 1, 2009 and runs to Jan. 31, 2011, while basis sign-up runs from Feb. 22, 2010 to Jan 31, 2011.

Fixed Price Contract (FPC): a pricing alternative that offers farmers the ability to price their wheat at a flat price. The price is set daily, based on the average price of western Canadian wheat already priced for sale by the CWB and the current market value of wheat yet to be priced.

FlexPro: a pricing alternative that offers a daily cash price for wheat throughout the crop year. FlexPro is based on the current values at which the CWB can sell, and prices are directly linked to all markets the CWB sells into. Producers must commit tonnage to the program prior to the start of the crop year and can start pricing their wheat Aug. 4. Committed tonnage is known in advance, so risk can be managed without need for an adjustment factor.

FPCPlus: the durum version of the FPC offers farmers the ability to price their durum at a flat price. For durum, the flat price is calculated by deducting a discount for risk, time value of money and administration costs from the Pool Return Outlook. Program participants have the potential to receive a rebate of the risk discount. Wheat and durum FPCs are calculated differently because durum does not have an associated futures market like wheat does.