November 5, 2007

 

Strong wheat bids from Canadian ethanol plants; farmers rethink CWB

 

 

Strong demand for wheat from western Canadian ethanol plants may be causing some farmers to back out of their longer-term contracts with the Canadian Wheat Board in favour of a quick return.

 

The CWB confirmed that there are always some producers every year who choose to buy back their contracts, but couldn't say if any of this year's activity was tied to higher prices offered by ethanol plants.

 

Husky Energy Inc. (HUSKF), one of western Canada's largest ethanol producers, is currently paying farmers C$6.00 per bushel for wheat for January delivery, said Jake Davidson, a farmer near Husky Energy's Minnedosa, Manitoba ethanol plant and executive manager of Winter Cereals Canada. The bulk of the wheat used for ethanol production in Canada is winter wheat, and that price compares favourably with Fixed Price Contract values from the CWB, he said.

 

"If you look at six dollars cash in the bank today from an ethanol plant, versus C$5.81, but in multiple payments (from the CWB), I can see where some of these farmers are deciding that there may be money in getting out of some of these Wheat Board contracts," Davidson said. "It's cash money versus two or three payments, and cash speaks," he added.

 

"Farmers certainly do have the option of buying themselves out of their FPC's at any point if they think there are better opportunities," said Maureen Fitzhenry, CWB spokeswoman, although she added that there are penalties associated with such a move. She said there was some buying back currently taking place, but couldn't quantify it and said the CWB isn't concerned about its own supplies. In addition, farmers aren't required to say why they are exiting CWB their contracts, Fitzhenry said.

 

While ethanol producers are currently offering a better return than the CWB, that wasn't the case a year ago and the opting out of contracts may be happening in the other direction as well, Davidson said. He added that some ethanol companies contracted people a year ago for wheat at prices closer to C$4.00 per bushel, which may cause those farmers to explore their options.

 

Video >

Follow Us

FacebookTwitterLinkedIn