$85.4mil Wheat Pool Deficit.

[AdamSmith]

To Ration-Al, I assure you the decision was made for economic reasons, in fact I was mentioning to a farming neighbour just the other day that should the CWB lose it's monopoly tomorrow, I probably still wouldn't seed any CWRS next spring.

To Tom, I still must grow cereals in my rotation, and those for the last few years have been malt variety barley (a CWB grain) and winter wheat (another CWB grain) so even though I don't grow CWRS I'm still growing grains that are hugely influened by the CWB. Other than the first year I grew winter wheat, I have sold all my production into the domestic feed market and the barley seems to be 50/50 (malt to CWB and feed to the domestic market)

But gentelmen let's just suppose the CWB does offer a cash price program. And lets say the market price in Minnie or KC rallies and hundreds of producers lock in the rally prices yet the CWB does not resell right away and then the market falls leaving the CWB losing money buying grain from those producers. In the commercial world that's no big deal but in the non commercial world of the CWB it becomes a little more complicated. Ultimatly that money comes from somewhere and we know the CWB is not at commercial risk, so who will cover that loss? Also do not underestimate the importance of basis negotiation in determining farmgate price.

I haven't even touched on the varietal issues like varietal development or quality issues.

A learned individual in the grain policy buiz, was talking to me the other day about how Corn yields, Bean yields, HRW, SWW, and Canola yields have increased since 1960. Corn alone has increased by close to 150% yet CWRS specificly has managed only a 15% increase in trend yield since 1960.

That alone speaks volume about the single desk system.

Lastly Ration-Al about the tree in the woods thing, I'll refer to Dr.Phil who says that the most important relationship that we're ever going to have in this life is the relationship we have with ourselves. So when that tree falls, I hear it and that's all that really matters to me.

[Ration-Al]

Adamsmith

You said
"But gentelmen let's just suppose the CWB does offer a cash price program. And lets say the market price in Minnie or KC rallies and hundreds of producers lock in the rally prices yet the CWB does not resell right away and then the market falls leaving the CWB losing money buying grain from those producers."

Before you condemn the program you should take the time to actually understand it. When a producer enters into a PPO that grain is hedged so that there is no risk to the CWB. The producer has taken himself out of the pooling system completely. The producer who enteres into the producer pricing option pays all of the costs of doing so. He pays the admin costs -- he pays for the borrowing costs, and he pays for the cost of hedging.

You see the producer pricing options were intended from the outset to completely indemnify those producers who choose to stay in the pooling system. Cash pricing is simply an extension of the fixed and basis price contracts with the addional ability of pricing throughout the year. The principle remains the same, except that at some point in time those who wish to price outside of the pool must make a committment that they will in fact stay out of the pool even if they called it wrong and the cash market drops below the PRO. You cannot have the freedom of cash pricing throughout the year and still have the ability to jump back in the pool and drag down the PRO for those who committ early to the pool.

[AdamSmith]

Ration-Al,

In a free society it is my right and privilidge to condemn any product or service I choose. This is what allows for progress. Bad products, Bad Services and Bad Businesses fail because consumers have the freedom to condemn.

But what I see and here from the single deskers is You'll take what were offering and you'll like it. Well Henry Ford tried that trick with his Model T. He said to a customer who wanted a different color car, "You can have any color you want, as long as it's black". Had Henry Ford had a legislated monopoly we'd still be driving only black cars and trucks.

If you believe the CWB PPO/cash price system is fine, that's great. But don't, I repeat, don't try and tell me what I should like and dislike.

[Ration-Al]

I don't recall telling you to like or dislike anything. I did suggest that you understand something before you make false assumtions.

That is a simple rational statement. No need to bring Henry Ford into the discussion.

[TOM4CWB]

Ration-Al;

I cannot agree that there is no risk to the pool on PPO contracts.

When I hedge a PPO, the CWB SAYS they hedge the risk, but in fact there is no specific risk management procedure to back this up.

I found this out last year when I tried to liquidate a CPS PPO... and was told no specific hedge was in place on the contracted CPS I had not yet delivered... in fact that my hedge had probably been lifted months before.

We will know more when 2002-03 CWB financials on PPO's and contingency fund/risk management accounts in the PPO statements.

The CWB has a real mess for risk management going on, and says what is convenient to allow them to keep as much PPO basis margin as possible, to build up the contingency fund.

It is just another symptom of same problem that created the $85.4M deficit.

[TOM4CWB]

Ration-Al;

I went back in my documents and this is part of a Message I wrote to Henbent this spring that helps clearify CWB hedging pracitices on PPO's:



TOM4CWB wrote:
This is what Adrian Measner wrote me on February 24th, 2003;

"As you may be aware, the CWB hedges the producer pricing options by selling the futures when producers lock-in a FPC contract or when they lock-in the futures component of a Basis Price Contract (BPC).
THE CWB UNWINDS THIS HEDGE BY BUYING BACK THE FUTURES AS THE CWB PUTS SALES ON THE BOOKS (ESSENTIALLY THE CWB IS BUYING THESE PRODUCERS OUT OF THE POOL ACCOUNT OR OUT OF ALL SALES). THEREFORE, MOST OF THE FUTURES BOUGHT BACK TO DATE WOULD HAVE BEEN PURCHASED AT VALUES HIGHER THEN THE CURRENT MARKET." (EMPHASIS ADDED)

TOM4CWB said: Taking off a hedge BEFORE the specific PPO contracted grain is delivered... is not risk management, it is foolish speculation. The CWB expects me to pay them if the futures goes higher, If I need to buy out of this contract. SO EXACTLY WHY DOESN¡¨T THE CWB HAVE THE OBLIGATION TO HOLD THE FUTURES POSITION UNTIL THEY TAKE DELIVERY OF THIS CONTRACTED GRAIN?

WHAT IS REQUIRED OF ME, SHOULD BE REQUIRED OF THE CWB, if this is to be a fair commercial contract that has legal legitimacy. AGAIN the CWB tells me to sue them, If I don¡¦t think the contract is fair.

THIS CWB PPO management of futures is not commercial, not risk management, and not to the benefit of my farm or your farm."

I practice the CWB sells the PPO grain to the contingency fund at the final pool price... then fiddles around with hedges as they think "looks good" and then puts the remainder of the funds into the contingency fund.

CWB operations are not accountable and do not stand up to the principals of common law... which CWB directors have sworn to uphold... these principals are:

1. The Common Law is based on the Golden Rule, which states;
Do unto others as you would have done unto you,
And the Negative Golden Rule, which states;
Do not do unto others as you would not have others do unto you;

2. The two fundamental principals of common law:
ć Do not infringe upon the Rights, Freedoms or Property of others, and
Keep all contracts willingly, knowingly and intentionally

Common law maxims include:

ć That for every wrong there is a remedy,

ć The end does not justify the means,

ć Fundamental principals cannot be set aside to meet the demands of convenience or to prevent apparent hardship in a particular case,

ć Ignorance of the law is no excuse for breaking the law,

ć Two wrongs do not make a right, and

Probably the most fundamental right of all is,
ć One can enlarge the rights of the people, however they cannot be taken away without their informed consent.

[Ration-Al]

Tom,

you said

"WHAT IS REQUIRED OF ME, SHOULD BE REQUIRED OF THE CWB, if this is to be a fair commercial contract that has legal legitimacy. AGAIN the CWB tells me to sue them, If I don¡¦t think the contract is fair."

I assume that you have a contract with the CWB when you enter into a PPO. You do that of your own free will accepting the terms and conditions of that contract. What is required of you under the terms and conditions of that contract should have absolutely nothing to do with how the CWB manages risk internally. How and when they unwind their hedges and how much money ends of in the contingency fund has zero impact on your ability to freely exercise your rights under the PPO contract.

Why do you want to confuse the issue with your view on the business rationale of the CWB? Do you question the business rationale of your local car dealer when you purchase a vehicle from him. As long as the two of you honor the terms and conditions of the contract what do you care if he profits nothing or a lot from the deal.

I suspect you are going to turn the argument around and say that you disagree with the CWB's management of the PPO's from the perspective of a producer in the pooling system. Again I reiterate that all of the costs of the operation of the PPO's are borne by the participant. The cost of administration, the cost of borrowing and the cost of risk management. And i think that you are correct in stating that the proof will be in the annual statement of the CWB when it comes out. I think that the PPO's are accounted for completely separate from the pooling system and the net result of the operation of the PPO's whether that be positive or negative ends up in the contingency fund.

Last year the contingency fund did end up with a significant balance as a result of the operation of the PPO's. You can characterize that as being unfair to you as a participant of the PPO but those were the rules under which you chose to become a participant and whining about the balance in the contingency fund after the fact is just sour g****s.

[TOM4CWB]

Ration-Al;

You missed my principal main point, that PPO contracts are NOT covered be commercial risk management hedges that can be unwound like a commercial canola hedge.

The CWB wants it both ways, and will keep the futures profit without crediting it to the PPO farmer contract holder if the CWB "feels" like it.

“Arbitrage opportunities will be measured to assess the value of switching to a higher basis level and switching to the pool account. As well, any losses in the futures position need to be accounted for.”

How exactly does the CWB do this?

“There are provisions to aid in controlling liquidated damages: transfers and buyouts.”

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, instead of taking the hedge off as the specific PPO contracted grain is delivered to fill the PPO contract I hold.

Ration-Al, this is NOT the in the contact terms and conditions, nor are the “provisions to aid in controlling liquidated damages: transfers and buyouts.”

ONLY a monopoly can get away with this.

I as a farmer have no choice but to sign up to this monopoly contacting PPO system, this is not, a optional choice or as you put it:
“You do that of your own free will accepting the terms and conditions of that contract.”

I either take the CWB’s PPO contract or pool;

NO other alternatives.


Ration-Al, since I am the producer filling the coffers of the Contingency Fund, I am curious why you say; “How and when they unwind their hedges and how much money ends of in the contingency fund has zero impact on your ability to freely exercise your rights under the PPO contract.”

Ration-Al, how the CWB manages this risk has a huge impact on the basis the CWB feels justified in charging on the PPO contracts,...

...which is MY money confiscated to pad the CWB’s accounts… many times it doesn’t end up in the contingency fund but ends up in the pooling account which isn’t supposed to happen.

On top, huge losses from PPO’s likely have been encountered in the pool for the 02-03 crop year, as we know the price constantly dropped as the crop year progressed.

Since the CWB said:
“THE CWB UNWINDS THIS HEDGE BY BUYING BACK THE FUTURES AS THE CWB PUTS SALES ON THE BOOKS (ESSENTIALLY THE CWB IS BUYING THESE PRODUCERS OUT OF THE POOL ACCOUNT OR OUT OF ALL SALES). THEREFORE, MOST OF THE FUTURES BOUGHT BACK TO DATE WOULD HAVE BEEN PURCHASED AT VALUES HIGHER THEN THE CURRENT MARKET."

I was told this at the end of February, and didn’t deliver my CPS till June, while there is a good chance the CWB took the hedge off in October 02 at the top of the market! Exactly how much did this cost, and who will pay for this fiasco Ration-Al?

[axiom]

Oh Al, you seem to wallow in all the possibilities different pricing scenarios. And all the array of different programs the CWB could 'arrange ' for the poor bloody farmer.

You smell like a Wheat Board planner and I'll bet you get a Board cheque in the mail every time you fill out your per diem forms. All of your 'planning and scheming' and designing on this site tries to disguise the broader important facts that can easily get lost here:

1. Just as we don't need to simulate wheat growers, when in fact we have wheat growers, we don't need to simulate a Non-Board environment (your idea!!) when we have an open market.

2. Your claims that you are "simply looking for constructive plans that will provide more options and flexibility', keep stumbling on the obvious free market option.

3. You plead, " Let's get over it and move forward with some rational, constructive discussion', when in fact the most rational ideas have been presented in Commodity Marketing in this forum. Try reading them with your finger this time so that you can follow a little better and I'll put the key message in bold so that you can't miss it in this paragraph. THE CWB MUST GRANT LICENSES TO WESTERN FARMER APPLICANTS. According to you the Board is doing such a fine job, so only the radicals and the marginalized will apply for export licenses anyhow. A handful of ineffectuals are hardly going to make any difference.

4. Farmers should always be aware that the CWB neither follows the CWB Act that governs them nor respects the farmers that they serve. If this crown corporation refuses to follow the law, they actually show contempt towards the farmers they serve. As do the Directors. So with all these proposed programs that could come into effect, what makes you think the CWB will follow their own rules, or contracts?

Lastly, farmers are ticked off because their grain was not sold for a good price in a time of low production and high value. There is a big deficit in the pool accounts. Who in the world could, with a straight face, defend the CWB?

[Dyno]

Tom, you said
"Charlie;

I was reflecting on the CWB refusing to take CPS/3CWRS/Feed wheat on the "c" series contract.

It really stinks that the CWB are such a bunch of cowards, that they locked out the lower grades of wheat from the marketing arbitrage of world prices, and forced wheat farmers to sell for less than market value into the non-board domestic market.

How quickly we forget the travisty of justice the CWB got away with,


... with a few smooth comforting words... from CWB spin masters...

we forgive and forget like nothing ever happened...

While young grain farmers are destroyed and have the life blood sapped out of them. What can these folks do... apply for NISA/FIDP... learn to suck on government to survive...

WHat a heritage to leave our next generation!"

What a total crock, maybe its time some producers stood up and acted like men over their part in this deficit, they whined so bad the CWB backed down on refusing the 3Red last summer and subsequently took it in on an ad hoc basis, thereby contributing and magnifying the deficit. Sorry Tom, you can't always have it both ways, first, the CWB are big bad boogeymen for refusing to take the late 3Red (which was the right "commercial" thing to do), then they are dumb marketers for running a deficit as a result. Tom I think you should take up watching curling, you sound so much like one of those "wizards behind the glass" that knows it all but has never thrown a rock.