From a farmer’s standpoint, price pooling will provide effective and offer hassle-free risk management, said Flaten. Pooling is also designed to maximize returns to farmers, in order to make sure they keep signing up in subsequent years. CWB pools will also provide more delivery options and flexibility in terms signup times and grading.
Flaten also foresaw many producers marketing some of their grain through a pool and another portion in the open market. In that scenario, the pool will provide producers with a good performance benchmark for the rest of their marketing program.
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From a grain company’s standpoint, CWB pools will allow them to handle grain without taking a long position.
Bruch said price pooling was also a possible option that grain companies will look at in addition to the CWB pools — although it remains to be seen to what extent they will be utilized.
Alternatives to pooling for risk management largely revolve around the futures contracts in Minneapolis, Kansas City, Chicago and Winnipeg, although the challenge in the new ICE Futures Canada contracts will be liquidity, said Bruch.
Wheat has more risk than other commodities, he said, due to the larger number of variables at play with respect to quality.
Grain company contracting options, Bruch said, will likely include flat price contracts, basis-only contracts (where the basis is locked in and the futures are open), futures-only (where the futures are locked in), target price (where the producer sets the price and the grain company executes when that price is hit), floor price contracts (which set a minimum and leave the upside open) and average-price contracts (which operate like pools), among other possibilities.
Which contract options are used will largely depend on producers, what they utilize and what they find benefit from going forward.
