CWB Announces Enhancements to Producer Pricing Options

[charliep]

Just a note to let everyone know information has been posted in their web site.

http://www.cwb.ca/en/news/releases/2003/021003.jsp

Details are scarce hear but will keep you posted.

[TOM4CWB]

Charlie;

More of the same... the details are on the CWB Web

"The intent of charging damages is to ensure that the program is not being used for speculation."

Since the CWB forces every farmer to speculate... because of the July 31st sign up deadline (we don't know what we will have to sell, until later in the fall)... this is CWB... sick humour... at it's finest.

THe CWB continues to use the PRO... so realistic actual basis levels are not part of the Program.

Farmers dicipline the open market basis levels... if they are unreasonable... no farmer will accept the basis. With the CWB, if you don't accept the basis... don't collect $200 and go directly to jail...

Too bad... the CWB had a chance to make things better... more of the same

[TOM4CWB]

Charlie;

I see all the CWB PR of the changes... yet the switch of the futures... is non-functional when the CWB basis determines the price... the earlier sign-up is about 4 months late... and the additional CWB basis manipulation is intended to further cover up any transparency of pricing that we may have been glean from the present system... my estimation is that these changes are purely cosmetic...

WHat have you and Lee discovered?

Having a monopoly... who chooses to promote pooling above all other pricing systems... can only result in one outcome... a system that favours pooling!

WHy not provide minimum price contracts like Ontario did in the fall of 2002.. for the 2003 harvest?

Where exactly does the CWB mitigate any risk for me in these new contracts?

[melvill]

I've been trying to figure out the implications of the detail changes (and you know the devil is in the details) but I haven't been able to put a huge amount of time into studying the devil.

I'll post more details as I figure them out.

[TOM4CWB]

Lee and Charlie;

My understanding is that the following occurs, regarding CWB handling of the futures transacted on behalf of PPO contract holders...

The CWB hedges the producer pricing options by selling the futures when producers lock-in a FPC or when they lock-in the futures component of a Basis Price Contract (BPC). Then CWB takes this hedge off by buying back the futures as the CWB does it's sales.

I cannot understand how this hedge actually is supposed to manage risk specifically created by my PPO, as I may not deliver until over six months after the hedge is taken off, or conversly may deliver a product that the hedge could not cover in the first place... such as feed wheat. I do not see any change in the 2003-04 PPO contracts in this hedgeing CWB risk management system.

It also appears that the PPO contract holder is expected to essentially hold a put on the futures... as the CWB seems to be charging a portion of futures downward movement, plus the ongoing spread rollovers, into the basis.

Therefore the PPO contract has a real bent to continuously depreciate... while the farmer watches the pool value appreciate...

THe refusal to allow PPO contacts to be delivered within the Futures/Basis contract spec. does really complicate the whole system... the CWB hybred PPO is more a function of flat pricing the widest basis the CWB can imagine... and exposing the PPO farmer to all downward futures risk... while allowing the CWB the opportunity to capture all upside futures and basis movement...

What the CWB does with the actual futures position created for each PPO is not a farmer issue, because after the CWB unwinds the futures... the CWB still expects the Farmer PPO holder to cover the upward futures movement... therefore I would insist the CWB is itself also responsible for downward futures movement, for the tonnes outstanding on the contract... until the contract is completed.

TO call these contracts complex... is a serious understatement... they are so twisted as to make the trail of risk management virtually untracable.

I guess this is the idea in the PPO contract concept to begin with... creating an artificial market(PPO's themselves) that efficiently creates the future... is obviously impossible

Therefore farmer risk mitigation considering the PPO contracts vs. the pool accounts does not essentially exist. PPO contracts are by design created to dump risk on farmers, and relieve the CWB of all risk.

[charliep]

The answer would be yes to all your comments.

The CWB is making sure the producer pricing option prices/basis are always related to the PRO. A much simpler mechanism would be to treat the PPO separately and hedge it in a manner that removes price risk (risk of futures change) from the pooling accounts. End result - a legitimate cash price.

As a note, market choice in Alberta would make this discussion irrelevant.