Farmers rethink CWB as ethanol plants bid up for wheat

(Resource News International) — 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 (CWB) 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 could not say if any of this
year’s activity was tied to higher prices offered by ethanol
plants.

Husky Energy, one of Western Canada’s largest ethanol
producers, is currently paying farmers $6 per bushel for
wheat for January delivery, said Jake Davidson, a farmer near
Husky Energy’s Minnedosa, Man. 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 (FPC)
values from the CWB, he said.

If you look at $6 cash in the bank today from
an ethanol plant, versus $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,” said Davidson. “It’s cash money
versus two or three payments, and cash speaks.”

“Farmers certainly do have the option of buying
themselves out of their FPCs 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.

There was some buying
back currently taking place, she said, but could not quantify it and
added that the CWB is not concerned about its own supplies.

In
addition, farmers are not required to say why they are exiting
CWB contracts, said Fitzhenry.

While ethanol producers currently offer 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, said Davidson.

Some ethanol
companies contracted people a year ago for wheat at prices
closer to $4 per bushel, which may cause those farmers to
explore their options.