Many Canadian Farmers Switch From `King Wheat' to Canola

WHEAT is still the king crop among Canada's farmers, but you wouldn't know it here on the floor of the Winnipeg Commodity Exchange, where all the action is in the canola futures pit.

About 60 traders, most wearing company-identifying multicolored jackets, are furiously marking fistfuls of trading slips while glancing furtively at a large digital board listing canola contract prices by month.

The relative quiet is deceptive. Trading is open, but few traders are active, despite the fact that there is just one minute left in the trading day. Some traders pace nervously, apparently trying to figure out their strategy. Only a few venture bids or offers.

``Hey! Sell August,'' a yellow-coated trader bellows. But his colleagues act as though they haven't even heard him. Nobody responds. After five or 10 seconds, another trader belts out: ``Three bucks for August 24 puts!'' He, too, is ignored.

All eyes are on the digital clock as it counts down to 1:14:30 p.m., when three quick bells sound, and there is a sudden explosion of noise and action. Grown men leap up and down and bounce against one another, waving their trading slips and shouting at the top of their lungs. Thirty seconds later, another bell rings and it is over.

The tension now broken, some traders smile, while others glare at the slips in their fists - the mood is not unlike a locker room after a football game. One trader wearing the jacket of Midland Walwyn, a large grain trading company, is laughing as he turns to a friend: ``All of a sudden I felt this jolt, and my teeth....''

One reason why canola is traded with such vigor here in the closing seconds is that players on the exchange - international grain traders, merchants, exporters, oil-seed crushers, and others - know that they will make grain purchases or sales ``overnight'' in the exchange's off hours.

Many, however, want to buy a contract for delivery of canola in the future at the price set that day. Locking in today's price to minimize the impact of fluctuations is called a ``hedge.''

It works like this: You own a hog, which you plan to sell in two months. Somebody has said they will buy it then for $400. The price of pork may be higher 60 days from now, but it may also be lower. To capture your profit, you agree to that price. That contract would be called a ``futures'' contract if it was bought or sold through a commodity exchange.

The Winnipeg exchange is the only one in the world that trades futures contracts for canola - a yellow flowering rapeseed hybrid whose seeds produce oil often used in place of soybean, palm, or other food oil. The Japanese and Europeans are big buyers of canola, and so, increasingly, are Americans. Canola's importance has risen along with demand for oils with less saturated fat.

With growing international appetite for canola oil in mind, many Canadian farmers took the plunge and planted 30 percent more this year, hoping that prices will bear up over the next six months. The harvest should nearly double, a Canadian government official says.

About 13 million acres of canola were planted this year, compared with about 10 million last year. By contrast, almost 29 million acres of wheat were planted this year and 32 million last year, according to Statistics Canada, a government agency.

The numbers indicate a ``very significant shift,'' says Fred Oleson, chief of market analysis for Canada's National Grains Bureau. ``Canada wheat prices have been down for almost a decade,'' hit by competition with subsidized wheat exports from the United States and the European Union, he says. ``Many farmers have had enough of it.''

Prices for top-grade No. 1 Canada Red Spring Wheat have fallen from $186 (Canadian; US$134) per ton a decade ago to about $145 currently, Mr. Oleson says. In 1992, one acre of wheat earned a farmer an average net return of $13, compared with $32 for one acre of canola. The $350 per ton price for canola is lower than last year's $385 per ton. But even at that level, farmers will make out well on canola.

Traders at the Winnipeg Commodity Exchange run a daily supply-demand test of that gut-level farmers' hypothesis. But, so far, it looks as though the farmers have guessed correctly on price trends, says Curt Grapentine, a veteran trader. ``Canola just keeps getting stronger,'' he says.

Although canola by volume is still outpaced by the other grains, it has become an important moneymaker for many farmers after lean years of falling wheat prices.

Gary Bolt planted 600 acres in canola this year, more than one-third of his crop. It was a big move for the Saskatchewan farmer who has tested various crops but mostly stayed with wheat. ``It took a few years for us to wake up,'' he says of the long-term slide in world wheat prices. ``This year we're big into canola.''

You've read  of  free articles. Subscribe to continue.
QR Code to Many Canadian Farmers Switch From `King Wheat' to Canola
Read this article in
QR Code to Subscription page
Start your subscription today