CWB Basis Contracts

[charliep]

Just a note to highlight you have to make a decison on your CWB basis contracts this week if you are under the December futures. As with other basis contracts, no action by Friday means you will get priced out on that day.

You have the alternative of rolling the basis contract ahead for a cost of a dollar per bu. You lose the carry in the market however i.e. you basis is reduced to the posted one for the specific month you are rolling to.

My preference is to bite the bullet/price out and use other alternatives to pocket potential price increases. As was indicated by Tom4CWB in another thread, this is particularly the case if you have high protein hard red spring wheat (avoid the collapse in protein premiums).

Others thoughts?

[charliep]

Mistake. The penalty for rolling is a dollar/t - not a dollar per bu.

[charliep]

Also Charlie, if you are rolling out to a different futures month, your basis will be adjusted. The new adjusted basis will be the original basis you selected plus the difference between the futures price currently applied (Dec or Mar) and the new futures price.

new basis=original basis (current futures-new selected futures month)

The main advantage is more time for the farmer to price.

Tom

[charliep]

Tom

I was trying to calculate how contracts are rolled and I have to admit to being a little confused.

As an example, say I signed a basis CWB contract for $19.91/t on June 28. Based on today's posted value, I could lock in a price of $201.50/t for 1 CWRS 13.5 (I'll assume this to make easy) or a top up to my initial payment of $32.30/t (highlighting again you get this within two weeks with no final payment).

Looking at the market, I think (for example purposes only) wheat prices are going to head higher. I want to roll my basis contract to May. My understanding is that you take the difference between the Dec. and May posted CWB values ($174.19 for Dec. and $186.30 for May or $12.11/t today) and subtract it from the basis you locked in ($19.91/t). You subtract another $1/t for adminstration and this gives you the value of the new basis. Your new basis in this example would be $6.80/t over the posted May price (MGE May futures converted to Cdn $/t).

Am I doing this right?

[crusher]

Charlie,
Your analysis is correct on the roll. I rolled my December contracts because the $1 admin fee is about the same as my brokerage fee to buy back the futures, plus I have no margin calls. The downside is I can't put in a pricing order or price during the day.

With respect to locking in your protein premium, I think you may have a problem. That can't be locked in. The price you receive will be based on the initial of the grain you haul, calculated on the delivery date. Hopefully one can fill his contracts before the premiums narrow in.

Sidebar: I've had to do a few amendments to my contracts and the staff at the CWB has been very helpful (even saved me a few $$).

Crusher

[TOM4CWB]

thalpenny,

Could you please go through the penalties for not going through with pricing and delivering against the wheat basis contract.

Further, if the basis is rolled yet still unpriced, what is the penalty for non delivery after the roll to the further out futures month.

I have cancelled basis contracts using the so called "act of God" clause when severe weather recked my crop.

Please explain what "cost" the CWB has actually paid someone else, if the basis contract has remained unpriced.

I understand the CWB pooling accounts are the other side of these contracts, and the basis contract does not transact to a grain company or buying customer of the CWB grain, is this correct?

[TOM4CWB]

thalpenny,

Please explain why the CWB cannot use the WCE feed wheat futures to price feed wheat that has been contracted!

One of the biggest draw backs to using the CWB basis contract is the complete failure of the CWB to be competitive on the feed wheat side of the contract.

Why does the CWB refuse to provide this service to us???

[rain]

One other option is to just take the penalty and buy back the basis.

If you have a high protein wheat 12.5 or better. Buy back the basis and deliver the wheat to the CWB and take the innitial price. Right now the initial is well above any of the basis prices any way. Then your upside is limited to the pool price. The down side is nothing.

The narrowing spread between Minn and Chic wheat is slammming these basis contracts and I have not been able to get any reasons why in the states.

Intersesting though #DNS Portland is about $20.00 better than last years avge price.

[charliep]

Rain

Just a query/clarification. Depending on when you signed your basis contract, your fixed price contract today (pulled the trigger on the basis contract) would be $202 to $204/t depending on your locked in basis. The CWB pool return outlook for 1CWRS 13.5 % protein is $211/t. For 13.5 % protein, you are about $8/t better off in the pool with the acceptance of any benefit or risk of total payment changes.

What about other classes? Pulling the trigger today gives about a $34/t payment from the CWB. Appologizing for using Vancouver payments, the would provide total payments of $214 for 1CWRS 14.5 versus a the PRO of $218/t.

CPS wheat would be about $154/t if you locked the basis in versus a CWB PRO of $180/t. Using a fixed price contract for CPS wheat doesn't work because the spreads on narrower in the PRO than in current initial payments.

Narrow US soft red winter and hard wheats (both winter and spring). US soft wheats are in tightest supply and this is being reflecting in tighter spreads. More SRW type wheat is being shipped as aid to parts of the world like Afganistan (flat bread) and this is aggrevating this situation.

Have some of your customers used the contracts? What are their comments?

[charliep]

ERROR ALERT. Adding $19/t basis to todays posted price of $174/t doesn't give $202 to $204/t. A more accurate calculator results in $193/t. The top up would be $24 instead of the $34 I used (based on 1CWRS 13.5 initial of $169.20/t). The other prices above would have to be adjusted accordingly.

I apologize for the mix up.

[charliep]

A couple of points I'll make -

- I noticed I missed a ' ' sign in the little formula I used earlier in the thread for rolling forward to different futures months. It should read:
new basis=original basis (original futures - new futures)
- in response to Tom4CWb's questions re: what costs are incurred by the CWB with a basis contract:
This is a different basis contract than a canola contract. With this program, you are securing a price relationship between the PRo and the Mpls futures.

So, with a basis contract that remains unpriced through to July, the CWB will assign any difference in your basis and the calculation (FPC-futures in $C) on the last delivery day plus an admin charge and collect this value from future payments owing to the farmer from the CWB. If the basis is 'in the money' you won't collect that, and there is still the admin charge for not executing the contract. In that example though, the farmer likley would deliver or have transfered the contract to another party.

Assuming also that the farmer has a CWB delivery contract in place, there will be a liquidated damages charge of $6-25 based on anything less than 85% of the delivery contract left undelivered.

- re: are there costs incurred with other parties, etc. The CWB doesn't use these contracts to secure pricing with buyers. There are basis contracts with buyers that are used where the buyer and CWB agree on a basis level and take offsetting futures positions. When the sale is priced, both parties swap their futures positions.

Tom

[TOM4CWB]

thalpenny,

What is the cost if I requested today, cancellation of a basis contract today, that was priced off the Dec Minn. futures the last day of July?

I did not recieve an answer on the "Act of God" clauses that are in other basis contracts, and a good reason why the CWB could not outright cancel outright an unpriced basis contract. Why couldn't these be cancelled without administrative fee to the farmer?

Further, why can't the CWB price feed wheat off the WCE futures, as it is almost $40/t higher than what you are offering today?

[TOM4CWB]

TOM4CWB, you can check on the buyout price with the CWB business center - 1-800-275-4292.

Nov 29 was the last day, so you may have been assigned a price if you took no action.

This is not a delivery contract, it is a pricing contract. There are other opportunities to buy out or transfer to another party. It is not meant to be a speculative tool in that regard.

The feed wht contract is not based off WCE because:
- farmers can deal directly with the open domestic feed market and with the WCE,
- the CWB generally doesn't deliver to the domestic feed market,

an outlet is required for the farmer to deliver in the event he gets feed quality due to frost, etc. However, there is significantly less direct price relationship between feed prices and the US futures contracts, so an additional discount is taken for feed delivery agaisnt the basis and fixed price contract.

Tom

[melvill]

tom4cwb, I haven't seen a basis contract with an "Act of God" clause in it for years. Most basis contracts don't have such a clause because a basis contract represents guaranteed supply for the buyer which, you know, means that the grain or oilseed has probably have been traded to another buyer long before it is received by the company that offered the original contract.

Please be specific, if you can, about where you have used basis contracts with an "Act of God" clause.

[TOM4CWB]

Lee,

My AgPro Canola Basis Contract had this clause in it, My CanAmera Basis Contracts have a gentlemans agreement that are not written, as with my Pioneer Canola Basis Contract for this past harvest.

I find it interesting that you are surprised, may I ask why?

I am always up front when I cannot supply, and even in our dealings with Cargil and Agricore in the past few years they have been accomidative without exception.