April 15, 2005
The Canadian Wheat Board (CWB)
today launched a producer payment option for organic farmers
that makes it simpler for them to sell their wheat and durum.
The Organic Spread Contract (OSC) lets organic farmers settle a
final spread price with the CWB at the time of sale rather than
waiting for final pool returns. The spread price will be fixed
on the same day they arrange a Producer Direct Sale (PDS),
thereby reducing the uncertainty associated with selling organic
"Before today's announcement,
organic farmers paid the spread between the initial payment and
the PDS price," said Rod Flaman, elected director who farms near
Edenwold, Saskatchewan. "Then they waited for pool returns to be
finalized to determine their final settlement. Now organic
farmers can pay one flat spread price on the day they arrange a
direct sale and after that, further payment to the pool is
Under the new OSC, organic
farmers who market their own grain pay the CWB pool accounts the
difference between the PDS price and the daily cash price.
Beyond this, an administrative fee will be the only other cost
associated with the program.
"As a board we are committed to
providing farmers with as many options as practical to meet
their individual business needs," Flaman said. "As an organic
farmer, I see this one-stop service as another example of farmer
focus at work in the CWB."
Flaman noted, however, that as
a director he is ineligible for any of the producer payment
The OSC will be available as a
pilot program in the 2005-06 crop year (August 1, 2005 to July
31, 2006), with farmers able to sign up tonnage from June 1 to
July 22, 2005. There is no limit to the sign-up for the first
The CWB will begin posting a
daily cash price on June 1 to help organic farmers become
familiar with the program. Farmers can begin pricing their wheat
under the program on August 2, 2005.
Recognizing the strong support
pooling continues to receive from producers across the Prairies,
the OSC has been designed to be revenue neutral to the pool
accounts, as is the case with all other pricing options, Flaman
A backgrounder answering
questions about how the OSC will work and an example of how a
farmer can use the program is attached to this release.
Controlled by western
Canadian farmers, the CWB is the largest wheat and barley
marketer in the world. As one of Canada's biggest exporters, the
Winnipeg-based company sells grain to more than 70 countries and
returns all sales revenue, less marketing costs, to Prairie
Organic Spread Contract
Q + A
What is the
Organic Spread Contract (OSC)?
The OSC is a Producer Payment Option (PPO) created by the CWB to
make it easier for organic Prairie farmers to independently
market their grain.
The Organic Spread Contract
enables organic farmers to settle a final spread price with the
CWB at the time of sale rather than waiting for final pool
returns. The spread price will be fixed on the same day they
arrange their sale.
Previously, organic farmers who
marketed their own grain using the PDS paid the spread between
the initial payment and the Producer Direct Sale price. They
then waited for adjustment, interim and final CWB payments for
the full transaction cost to be finalized.
Now organic farmers can pay one
flat spread price on a day of their choosing and there are no
further payments to the pool.
What is a
Producer Direct Sale?
A Producer Direct Sale (PDS) is
an option available to western Canadian farmers who want to sell
their wheat and barley directly to customers. Both the PDS and
OSC transactions let organic farmers to pursue price premiums
they may be able to independently negotiate with their buyer.
The PDS price for a given
market is essentially the price the CWB would offer to grain
buyers in that market on a given day.
When conducting a PDS, the CWB
quotes what it is getting for a similar product in a particular
market on a given day (known as the PDS price). Under the OSC
program, farmers commit tonnage to the program, then on the day
of sale, they pay the difference between the PDS price and the
daily price posted for the Daily Price Contract to the CWB pool
If they choose, they still have
the option of using other PPOs or doing the regular PDS for
grain they have not committed to the OSC. (Farmers can also
deliver directly to CWB accredited handlers of organic grain
without going through these direct marketing programs).
How will the OSC
affect the pool accounts?
Like all PPOs, the OSC has been
designed to be neutral to the pool accounts. With a July 22
sign-up deadline the CWB has ensured that appropriate risk
management measures can be taken.
Farmers who participate in PPOs
such as the OSC/DPC or BPC/FPC contracts determine their prices
outside of the pools. Risk management tools used by the CWB,
combined with a contingency fund, backstop these payments to
producers. Pool accounts are not affected by any PPO contracts.
How can farmers
sign up for an OSC?
Farmers who want to participate in the OSC can sign contracts
committing tonnage by the July 22, 2005 deadline. Sign-up begins
June 1, 2005, when pricing information will also become
available to enable farmers to familiarize themselves with the
pricing relationships under this program. Administration fees
will be associated with the program and are based on the types
of transactions being serviced.
Why is the
sign-up deadline July 22?
Without a sign-up deadline for both the Organic Spread Contract
and the Daily Price Contract prior to the start of the pool
year, hedging would not be effective and the pool return could
What if a farmer
cannot fulfil the terms of the contract?
Organic farmers will have until
October 31 to reduce their tonnage commitment by up to 40 per
cent without penalty.
Farmers can opt out of these
contracts up to the July 22 sign-up deadline for a $15
administration fee. After the start of the crop year, if farmers
cancel contracts they will be subject to damages paid to the CWB
to offset the CWB's losses.
Example of the OSC at
The Organic Spread Contract
(OSC) uses the Daily Price Contract (DPC) values along with the
Producer Direct Sale (PDS) value on a given day to establish a
spread for organic producers when executing a sale with their
end user. The following scenario is an example of how the OSC
might work. All figures are presented for the purpose of
On July 15, 2005, Farmer Bob
contacts the CWB to register 100 tonnes of CWRS organic wheat to
the OSC program. When the wheat is harvested, he plans to pursue
a marketing opportunity with a U.S. buyer and commits the
majority of his anticipated production to the OSC program based
on his average yields. He also takes into consideration 40 per
cent reduction option when making his initial tonnage commitment
knowing that he can adjust his OSC tonnage commitment to his
On December 1, 2005, Bob
confirms his 100 tonne No. 1 CWRS 12.0 organic sale with his
U.S. buyer and calls the CWB to lock in the OSC spread on his
The DPC value is $225 per tonne
(No. 1 CWRS 13.5 reference grade value of $235 and cash spread
discount of $10 per tonne for No. 1 CWRS 12.0). The U.S. PDS
value is $230 for No. 1 CWRS 12.0 on this day.
Summary of Bob's OSC
spread lock in on December 1:
|No. 1 CWRS 12.0 PDS
(reference adjusted by cash spread)
|OSC spread lock in
Bob's net payment is therefore
$500 ($5 OSC spread x 100 tonnes) plus administration by using
the OSC to finalize his costs. Bob will be issued his export
licence and can now deliver to his U.S. buyer.