Now everything is a cash crop, including wheat

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Canola has been the go to post-harvest pricing option in Western Canada in recent years, but the newly opened wheat market may lead to some additional off-the-combine cash flow opportunities.

“We look at the whole farm a lot differently now,” said Derek Squair, president of Agri-Trend Marketing Inc. in Winnipeg. Typically peas and canola would be the primary crops sold for cash flow, “but now we can use wheat for cash flow needs as well.

“For cash flow needs, we have a strategy around variable costs and cash flow, versus where we think the market will go in the long term,” said Squair. He said the open wheat market created more signals for farmers to capitalize on in both the short term and the long term.

However, just because wheat is now easier to sell, it doesn’t necessarily mean that now is the time to sell it. Wheat is a lot more complex than the other non-board grains, with additional grading factors and other channels where the grain moves.

“With wheat, there are still way more variables than there are with canola,” said Reid Fenton, of BLB Grain Group in Alberta. As a result, for the most part, “we’re recommending that guys get their wheat in the bin and check their specs to know what they have before they sell it… and then try to match sales.”

Fenton said bin space was not an issue this year, which should allow producers to store their wheat until needed.

Wildly divergent basis levels from company to company and from day to day also create some additional uncertainty in selling wheat compared to canola.

Wide protein values

The protein spread has also essentially disappeared, with no real common pricing from one company to the next. As an example, Fenton said a 1 CWRS 13.5 per cent at one company might be worth more than a 1 CWRS 15.5 per cent at another company.

“Guys really need to do their homework to make sure they know what they have and what they’re getting on the other end from the contract,” said Fenton. “Just because someone grades something better, they might be paying less money than a different company.”

With a number of variables still up in the air, Fenton said the wildly swinging basis levels would settle themselves out post-harvest.

Squair said U.S. wheat growers can currently see about 80 cents per bushel better basis opportunities than farmers on the Canadian side of the border, but with the grain now conceivably competing into the same markets, there should be room for Canadian basis to narrow in.

Actual marketing decisions will change on a case-by-case basis, but overall Squair thinks wheat has more room to go higher than canola. As a result, he recommended selling those commodities with a narrower basis, such as canola, over wheat in the current environment.

Some companies are already offering contracting options for wheat out to 2013, which means producers have forward-pricing options that were currently unavailable. Fenton said some growers were already able to lock in some wheat at C$8.50 per bushel for next year. “Right, wrong, or otherwise — if they’re making money on that — it’s a good price.”

Canola may wait

With wheat now trading in a more similar fashion to the other crops, canola exporters may run into some challenges getting timely deliveries, according to some market participants.

Now that growers can sell their wheat and other board grains into the cash pipeline, canola exporters may run into some challenges getting timely deliveries. The key thing will be keeping the pipeline fluid, for both canola and wheat.

“You don’t want to run the pipeline dry, because every month you lose shipping is a month you don’t get back,” said Lach Coburn, shipping manager with Cargill Ltd. in Vancouver. He said there were still many unknowns as to how farmers will want to market their grains and oilseeds, but was confident the overall market would sort itself out in the next few weeks.

Adrian Man, a trader for JRI in Winnipeg, said the demand for wheat hasn’t really changed, although there are now more sellers in the mix. “When you’re first starting, everyone has to make some adjustments,” he said, but noted that product is still moving and most companies are already experienced in handling the different types of wheat.

About the author

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Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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