CWB - PPO's

[rsmith]

Went to a Viagra sponsored CWB info meeting on PPO's this morning. First the Grainflo program is a real winner to pick your delivery period! Except the Nov./Dec. period has a percentage of acceptance. You elect this option after harvest when your grades are known, but it often seems to happen that grades can change as the year goes on at some elevators. The incentive is $1.00 per T. per month, wow. The catch is you have to deliver the grade you signed up for at the elevator you signed up at or pay a penalty to get out. You can't have a freind in another area deliver on it unless they haul it to your elevator. Rush out and sign up for this one!

As for the flex Pro, it may have some merit in a rising market. It runs for the whole year and you pick your price. If you don't pull the trigger it will be sold out on July 31. You are not included in the pool so your only guarantee is the initial price. You are also subject to the whims of the CWB basis calculations.

What do you guys think, do I have it right or am I missing the good part?

[TOM4CWB]

rsmith,

Is the initial price actually an assured base...on Flexpro... or can the CWB claw back like they are doing now on the FPC's?

[charliep]

Just to highlight TOM4CWB point, you are only guaranteed the flexpro price on the day you price. If the initial is higher than the flexpro, the CWB will want money back.

Also note there is no basis to the flexpro or relationship with futures. It is simply a daily posted price (which strangely is exactly the same as the fpc in the examples being posted) based on a basket of world prices.

Where I might use in a limited fashion (i.e. not much tonnage) is for wheat I plan to deliver in the last third of the crop year and want to be paid on delivery (or I should say 10 days after). You can accomplish the same thing using a basis contract on the fpc realizing adjustment factors apply starting Aug. 1.

Had a conversation with a farmer today about how the fpc/flexpro values and the relationship between futures market moves and basis. We were not able to come up with any rhyme or reason. The reason for the conversation by the way was the recognition that Thursday is a PRO forecast day and if the PRO follows the drop in the market, could be down by close to $40/tonne or a buck a bushel. And the basis on July 24 is likely to be ______?

[charliep]

Not much conversation about the flexpro (likely because people have already made up their minds). This week's e-malt newsletter quote is maybe fitting, however.

"Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that's creative."

[charliep]

Charles Mingus is the author of the quote.

[charliep]

Round 2 of my explanation of flexpro has been posted on call of the land.

http://www1.agric.gov.ab.ca/$department/newslett.nsf/all/cotl13762

To confess to the gremlins (and admit I wish my brain thinking would keep up with my mouth speaking sometimes), the pricing deadline for the flexpro is July 31 2009 (not Dec. 31) and that high valued existing sales in the pool in a declining market result in a positive adjustment for the fpc while lower valued existing act as a drag on the fpc values/a negative adjustment.