Last one for now! I'd appreciate hearing
any feedback on this forum or directly:
brenda@farmlinksolutions.ca
*****
Giving Farmers Choice Will Ease Grain Marketing Constraints
When producers have marketing choice
come August 1st, 2012, Prairie farmers
will gain a freedom to time their sales
of wheat, durum and malt barley in
response to market signals, which will
have a direct positive economic impact
on net farm returns. In crop markets
that are currently controlled by the
Canadian Wheat Board (CWB), the ability
to deliver and be paid for crops is
dictated to producers, limiting the
ability for farmers to time sales
according to the results of market
analysis.
This is not to say that it’s possible or
realistic to plan to sell at the highest
price of the year. Rather, producers
simply need the ability to sell for good
business reasons: in order to lock in
their target margin or return on
investment (ROI), to manage perceived
downside price risk in the market, or to
capture the opportunity of a market that
is making an interim high.
The CWB system hems farmers in and
prevents them from making marketing
decisions for good business reasons via
two key with non-market related
constraints. First, the policy of
smoothing delivery over the course of
the year, and providing equal access to
all producers, usually means that only
20-30% of their crop can be moved off
the farm at harvest time. The on-the-
ground reality for many is that there
isn’t enough bin space to store an
entire crop past fall, so being forced
to store the wheat forces them to sell
other crops, whose prices may be likely
to move higher later in the crop year.
Generating cash flow in the fall is
another common reason farmers end up
forced to sell crops at inopportune
times. Here again, the old CWB system
imposes a constraint on farmers, by
paying only a portion of the value of
that 20-30% that producers are allowed
to deliver in the fall. Typically, the
initial payment is set at 60-65% of the
crops’ expected value. Full payment
isn’t made on Board grains until more
than a year after the crop is harvested.
It’s not uncommon for the CWB to allow
only 60-80% of wheat to be delivered in
the entire crop year. In these cases,
farmers are forced to store and finance
a portion of the harvest for over two
years. These situations can be
overwhelming for individual farm
businesses to manage; the storage and
interest costs involved dwarfs any
value, proven or perceived that the
single desk or the government guarantees
could ever hope to generate.
There are some relatively new CWB
programs that loosen these restrictions
marginally, but they don’t work very
well to alleviate the storage and cash
flow restrictions inherent in the system
because the organization has never moved
away from a strict policy of mandatory
pooling. The Producer Payment Options,
Guaranteed Delivery Contracts, CashPlus
and other initiatives have only taken a
very small step towards offering
producers commercial grain marketing
options.
Allowing producers the full range of
choices in marketing their crops next
year will go a very long ways towards
improving overall marketing performance
and enabling individuals to make better
business decisions.
www.farmlinksolutions.ca
any feedback on this forum or directly:
brenda@farmlinksolutions.ca
*****
Giving Farmers Choice Will Ease Grain Marketing Constraints
When producers have marketing choice
come August 1st, 2012, Prairie farmers
will gain a freedom to time their sales
of wheat, durum and malt barley in
response to market signals, which will
have a direct positive economic impact
on net farm returns. In crop markets
that are currently controlled by the
Canadian Wheat Board (CWB), the ability
to deliver and be paid for crops is
dictated to producers, limiting the
ability for farmers to time sales
according to the results of market
analysis.
This is not to say that it’s possible or
realistic to plan to sell at the highest
price of the year. Rather, producers
simply need the ability to sell for good
business reasons: in order to lock in
their target margin or return on
investment (ROI), to manage perceived
downside price risk in the market, or to
capture the opportunity of a market that
is making an interim high.
The CWB system hems farmers in and
prevents them from making marketing
decisions for good business reasons via
two key with non-market related
constraints. First, the policy of
smoothing delivery over the course of
the year, and providing equal access to
all producers, usually means that only
20-30% of their crop can be moved off
the farm at harvest time. The on-the-
ground reality for many is that there
isn’t enough bin space to store an
entire crop past fall, so being forced
to store the wheat forces them to sell
other crops, whose prices may be likely
to move higher later in the crop year.
Generating cash flow in the fall is
another common reason farmers end up
forced to sell crops at inopportune
times. Here again, the old CWB system
imposes a constraint on farmers, by
paying only a portion of the value of
that 20-30% that producers are allowed
to deliver in the fall. Typically, the
initial payment is set at 60-65% of the
crops’ expected value. Full payment
isn’t made on Board grains until more
than a year after the crop is harvested.
It’s not uncommon for the CWB to allow
only 60-80% of wheat to be delivered in
the entire crop year. In these cases,
farmers are forced to store and finance
a portion of the harvest for over two
years. These situations can be
overwhelming for individual farm
businesses to manage; the storage and
interest costs involved dwarfs any
value, proven or perceived that the
single desk or the government guarantees
could ever hope to generate.
There are some relatively new CWB
programs that loosen these restrictions
marginally, but they don’t work very
well to alleviate the storage and cash
flow restrictions inherent in the system
because the organization has never moved
away from a strict policy of mandatory
pooling. The Producer Payment Options,
Guaranteed Delivery Contracts, CashPlus
and other initiatives have only taken a
very small step towards offering
producers commercial grain marketing
options.
Allowing producers the full range of
choices in marketing their crops next
year will go a very long ways towards
improving overall marketing performance
and enabling individuals to make better
business decisions.
www.farmlinksolutions.ca
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