Hi,
Chatted with a CWB fella, in the risk management dept, on a rainy day last week that I had been trying to contact for some time. We talked for over an hour about basis, adjustment factors, contigency fund and sales. Got some clarification on these issues.
What I got out of the call was:
The adjustment is simply- Price of wheat sold in pool minus current futures price x % of pool sold. The CWB makes an estimate of how big the crop is going to be, and how much is coming to them and that is the pool size. To keep the FPC pool neutral everything that is sold after August 1 has an adjustment factor because it is seen as coming out of this pool. Eg. Ave Price of Wheat in Pool sold 260/tonne minus current future 300/tonne x % sold (30)?? = 12/tonne
Basis is calculated on an average of what it is going to cost to market the crop from now to the end of the crop year. This can include time value, change in currency value, port costs and delays in shipping, ocean freight, changes in future prices from time of sale tendered to acceptance, etc. I was also told that the basis is relatively stable but can CHANGE between Pro's. The recent mid Pro change was because of execution risk while the markets were on the tear. I was also told that world markets had changed and the larger positive basis for HRS might be a thing of the past.
I also expressed my concern that extra money collected in the FPc programs was going into a contigency fund and then the overance was paid back through the pool. My frustration was understood but of course this is a legislative issue that we should be bringing forward with our directors.
Anyway, nothing changed for my current situation but maybe I have a better handle on the programs.
Later
Chatted with a CWB fella, in the risk management dept, on a rainy day last week that I had been trying to contact for some time. We talked for over an hour about basis, adjustment factors, contigency fund and sales. Got some clarification on these issues.
What I got out of the call was:
The adjustment is simply- Price of wheat sold in pool minus current futures price x % of pool sold. The CWB makes an estimate of how big the crop is going to be, and how much is coming to them and that is the pool size. To keep the FPC pool neutral everything that is sold after August 1 has an adjustment factor because it is seen as coming out of this pool. Eg. Ave Price of Wheat in Pool sold 260/tonne minus current future 300/tonne x % sold (30)?? = 12/tonne
Basis is calculated on an average of what it is going to cost to market the crop from now to the end of the crop year. This can include time value, change in currency value, port costs and delays in shipping, ocean freight, changes in future prices from time of sale tendered to acceptance, etc. I was also told that the basis is relatively stable but can CHANGE between Pro's. The recent mid Pro change was because of execution risk while the markets were on the tear. I was also told that world markets had changed and the larger positive basis for HRS might be a thing of the past.
I also expressed my concern that extra money collected in the FPc programs was going into a contigency fund and then the overance was paid back through the pool. My frustration was understood but of course this is a legislative issue that we should be bringing forward with our directors.
Anyway, nothing changed for my current situation but maybe I have a better handle on the programs.
Later
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