Direction of next months PRO's

[boarderbloke]

any speculation on the direction of next months PRO's ? stay? rise? drop?

[TOM4CWB]

Borderbloke,

you KNOW it is going to drop.

AWB has gone down $12/t... but might not be a good indicator of CWB because:

If the Aussie crop is 11mt, then with domestic use and stocks of
6.5 mill tonnes (mt), container trade of 1/2mt and the CBH export licence for another 1/2mt, it would leave only 3.5mt for the AWB to market in 07-08.
With AWB moving to price their pool,
one would assume that the pool will become immune to any large downside price moves from here on in.

THis assumes the Australian Crop Size The USDA has lowered the estimate for our crop to 13.5mt is wrong. With the crop going backwards rapidly in NSW and Victoria, and more crop
being cut for livestock feed, it is reasonable to project that the Australian crop will be closer to 11mt.

This could very well be right because
generally Australia either grows a 20mt plus crop, or a sub 10 mt wheat crop.

THis information was gleaned from the Oct 16/07 Callum Downs newsletter. [Obviously I didn't make it up myself!]

[TOM4CWB]

Charlie,

I note the cost of a feed wheat 100% PRO is $32.50!

Should tell us a BIG story!

$187.50 - $55/t is $132.50/t.

$3.60/bu.

The CWB wants $258.69 to buy your feed wheat back;

And the CWB wants $312.20 to buy your 1CWRS 13.5 back.

A spread of $53.54/t

PRO is $299 vs $220 a 79$ spread... and the 100% EPO is 1CWRS 13.5 $25.75 vs $32.50 for feed wheat.

The lower risk for CPS is revealed in the larger amount forward sold... by the 100% EPO being only $23.25/t

[charliep]

I use the fixed price contracts as a guide to the what is likely to happen to the PRO. Their direction/magnitude of change between PRO has been a good forecast. The historical charts have not been up for a few weeks (since the last PRO) but you can can compare current to the levels prior to the last PRO.

Will also note the interesting relationship between market based changes and changes in the adjustment factor. The lower market has resulted in a reduction in adjustment factors.

Perhaps more interesting will be whether the PRO is left higher to influence the federal government in their decision around adjustment payments.

[craig]

While the Pro is supposely an indication by the board of prices it is also an opportunity to manipulate to end serve the CWB. I believe there was tremendous pressure to substantially raise the last Pro's because the sales into pools and PPO's were getting out of wack. Not enough higher priced sales into the pool would have put them at a marked disadvantage at the end of the day. That pressure is now likely off. I would suspect that we will see a return to a more normal conservative Pro. The Board was slow to react on the way up but will more quickly react on way down. Sad we have a system where we have to try and read between the lines to figure out just what is happening.

[charliep]

The historical charts have been updated.

http://www.cwb.ca/public/en/farmers/producer/historical/

Highlights.

The changes in both futures and fixed price contract point to a lower PRO. Will it happen? Good question. The change really puts into question the whole philosophy of government guaranteed initial payments. In volatile markets, where should they be set?

The daily price contract remains substantially above the fixed price contract in all wheat classes (assuming pricing activity same day. The lottery win will put more dollars in your pocket.