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CWB Fixed Price Contracts Available for Durum and Early Pricing Option for Other Wheats

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    CWB Fixed Price Contracts Available for Durum and Early Pricing Option for Other Wheats

    The FPC for durum will be offered starting with the announcement of
    the Pool Return Outlook (PRO) on May 23, 2002. It will enable
    farmers to lock in a price on a portion of the durum that they plan
    to commit to CWB delivery contracts in 2002-03. Like the existing
    FPC that the CWB offers for wheat, the FPC values for durum will be
    based on the PRO less a discount for risk, time value of money and
    program administration costs. The fixed price will be available
    daily via the CWB Web site, through Fax on demand or by calling the
    CWB toll-free line. When farmers deliver to an elevator durum that
    has been assigned to an FPC, they will receive the initial payment.
    An additional payment, representing the difference between the
    initial payment and the fixed price, will be issued by the CWB
    within two weeks of delivery or settlement. These deliveries
    will be outside the durum pool and therefore will not be eligible
    for adjustment, interim or final payments.

    The durum FPC will be offered as a pilot program in 2002-03.
    Limited opportunities for hedging in the durum market mean that
    contracted tonnage will be capped between 50 000 and 100 000 tonnes
    and accepted on a first-come, first-serve basis. It is hoped that
    in future years, contracted tonnage can be increased.

    As well, farmers need to carefully consider the volume of durum that
    they will commit to an FPC. The CWB will guarantee that farmers
    signing an FPC will be able to deliver at least 75 per cent of the
    durum that they assign to 2002-03 delivery contracts up to the total
    tonnage committed to the FPC. For example, a farmer who will have a
    total 1000 tonnes to assign to CWB delivery contracts in the fall
    of 2002 should commit no more than 750 tonnes to an FPC for durum.

    With the expansion of the Early Payment Option (EPO) to all classes
    of wheat (excluding durum) beginning August 1, 2002, farmers will be
    able to lock in 90 per cent of the PRO for their crop, less a
    discount for risk, time value of money and program administration
    charges. Prior to this expansion, only Canada Western Red Winter
    and Canada Western Soft White Spring wheat were eligible for the EPO.

    When farmers deliver grain committed to an EPO, they receive the
    initial payment. Then, within two weeks of delivery, they receive
    an additional payment to bring their total returns up to 90 per cent
    of the PRO. Participants in the EPO remain in the pool account.
    If adjustment, interim or final payments rise above the value that
    they have obtained under the EPO, these farmers receive the additional
    payments.

    #2
    I got excited and blew the other CWB press release without asking for comments. Thoughts?

    Tom H. - How will the CWB manage risks on the durum FPC?

    Comment


      #3
      Basically, the CWB will use Mpls Spring wheat futures and the discount will take into account the risk that exists in trading between durum and spring wheat. As you know those prices are not a tight correlation. The contingency fund will backstop these two offsetting measures as a last resort. This is part of the reason for having a cap on this first year.

      I haven't seen any information on what the discount level will be, so I'll be watching for that when the prices come out in 10 days or so.

      Tom

      Comment


        #4
        thalpenny,

        Will seperate accounts be kept in the different classes of wheat barley and durum in the contigency fund, or will there be cross subsidisation between different types of grain?

        Comment

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