November CWB Pool Return Outlook

[charliep]

Just a note to highlight the November CWB PRO was released today. The CWB page location is:

http://www.cwb.ca/db/contracts/pool_return/pro.nsf/WebPRPub/2002_20021128.html

Not much time tonight but will go over more detail this weekend.

Having said that, some interesting notes.

1) Wheat ex durum PROs down $11 to $17/t. Not a surprise given the decline in the futures markets.

2) The decline in the converted Dec. contract MGE futures was $33.57/t ($242.44/t today versus $276.01/t a month ago). This is not a good indicator given this is a spot futures/doesn't basis for cash prices versus the CWB which is a blend of wheat sold/returns already in the pool, forecasts for upcoming and changes to normal given all this years crop should be sold to premium markets/out of the west coast. Never the less, an indicator.

3) Along the same vein, it is interesting to calculate what today's basis under the producer pricing option program would have been. This basis for 1CWRS 13.5 (will have to work out for other classes) would have been $50.43/t over the converted MGE Dec.(using $3.00 for admin., risk and time value money). The July basis was $2.30/t over.

4) The guaranteed EPO value (1CWRS 13.5) dropped to $266.40/t (90 % of $296/t) with a premium of $6.75/t or a net pocketed price of $259.65/t. Yesterday, the EPO value was $280.80/t with a discount of $20.50/t or a net pocketed price of $260.30/t. Initial payment for 1CWRS 13.5 is $250.20/t.

Lucky I kept things. Others thoughts.

[TOM4CWB]

Charlie;

The EPO now(today) is a much better deal, as a gain of over $10/t net is recieved, because the risk charge is so much less.


The percent of the pool sold would be good to know... your comment on the basis is spot on... what I would like to know is where does the almost $50/t go, to the contingency fund or the pool?

[charliep]

Tom4cwb

Will have to make inquiries on your where the profit from basis goes. Maybe I can get those of you to ask your directors the same question.

This is important stuff as Alberta/western Saskatchewan farmers move into next crop year. Drought means most of the crop has been sold this fall (pay the bills/satisfy contracts). There will be a 9 month period of no crop income for some (maybe some government). What they need is crops that can be delivered/priced/money deposited right off the combine. These CWB contracts need to work to accomplish this under this scenario or some other alternative needs to be provided.

[TOM4CWB]

Charlie;

It must be more than coincidence that the appro. $1.00/bu that many of us have been identifying as being missing from CWB cash prices has now shown up.

AS someone who priced most of the wheat our farm produced at the end of July, not to mention the affect this missing dollar/bu had on crop insurance in AB., I am sickened by the politics of CWB PPO contracts.

I used the reasoning of "use it or lose it" in the past with respect to PPO's... there should be a parliamentary inquest into what has happened.


So much for the CWB returning everything but the cost of marketing to "designated area" producers.

[charliep]

I talked to someone at the CWB and they indicated the profit (in this case) or loss from basis change on the producer pricing options goes into/against the contingency fund. Didn't do more digging than that. Seems to me the CWB publishes a separte financial report on the PPO options in the annual report.

I asked about the percent of the crop priced and as usual very quiet/no answer. A comment that was made is the the current PRO includes some level of optimism relative to the current market - implication is that US futures prices/international wheat prices have to increase over the winter to hold prices at current levels.

[TOM4CWB]

Charlie;

What are your thoughts on the EPO now that the premiums are 1/3rd of the cost?

I see this EPO option is still avaliable until Dec. 2...

[charliep]

I look at the net result which is the ability to lock in $260/t as a minimum price with the ability to capture higher payments if total payments move higher. The new strike price for total payments is $266.40/t (port so CWB deductions still have to come off).

My recommendation would be different for individual farms based on their financial and risk taking ability/attitude. A farm with good equity and cash fall well covered into the spring should stick to the regular pooled pricing. A farm under financial stress or with cash flow problems should use the program. I realize $10/t (25 cents/bu)isn't a lot but every dollar helps when you are trying to pay the bills in a tight cash flow situation. Also allows people to manage their risk - guaranteed payment.

Just another comment on cashflow. The current adjustment payment was pretty aggressive. I wouldn't hold my breath for anymore adjustments till next summer at the earliest. The caveat is a crop problem in a major northern hemisphere winter wheat growing region over the next six months - then prices would rally and this would allow higher adjustments.

[charliep]

Open Market wheat could have been priced at over $8.00 FOB the farm this fall.

CWB price premium price with final payment January 2004 will lucky to be over $6.00.

Thanks alot CWB supporters for giving every farmer in Western Canada a poorer than average price for the wheat.