CWB now a part of Freedom of Information

[AdamSmith]

Thanks melvill,

I was talking to my neighbour on the weekend and he told me that he did 3 seperate basis contracts on three seperate occasions for his 2006 crop of wheat. The first was earlier with no adj charge, the other two done later had the adj charge.

But ultimatly I think all farmers who use these programs would like a better clarification on the rational for these basis levels.

As I have posted earlier, I have compared basis levels off Minniapolis between Bottineau ND (30 miles away) and Melita MB (20 miles away)and the ND Basis was $C 68 cents under vs the MB CWB PPO Basis of $C 1.45 under.

Since basis is a sum of all costs associated of getting grain to a point of sale, is it not resonable to question this huge difference and is it not reasonable to expect someone within the cwb oganization has a valid explanation for it?

By the way it is not at all uncommon to have ND canola entering the Canadian system down here because our basis levels are sometimes more attractive than ND basis levels.

[melvill]

When the basis - and fixed price - contracts for 06-07 were announced by tne Board in Jan 06, I think, the idea of the visible adjustment factor was also announced. The details were that any basis contracts signed before August 1 would have no potential adjustment factor. Any signed on or after Aug 1 would.

You said, "Since basis is a sum of all costs associated of getting grain to a point of sale, is it not resonable to question this huge difference and is it not reasonable to expect someone within the cwb oganization has a valid explanation for it?"

Actually, basis is only partly made up of the costs of getting grain to a destination. Basis is better thought of as the local supply/demand picture for a product. One elevator may really need farmer deliveries in order to meet sales commitments or to fill soon-to-arrive rail cars. That elevator may bid a much stronger basis than, say, it's competitor 200 yards away that is full to the rafters and has no rail cars coming for some time. Then three weeks later, the second elevator knows it will be receiving 100 cars to meet an export shipment so it strengthens its basis to encourage deliveries while the first elevator has no "action" so its basis doesn't change.

[TOM4CWB]

melvill;

You wrote:

Basis is, "the local supply/demand picture for a product".

How exactly does this work with CWB involvement... when "the local supply/demand picture for a product" is the national view as determined by the "single desk" service provider?

Further isn't the "Orderly Marketing" clause in the CWB Act supposed to assume a fairness and equity factor that rids us of these local anomolies?

AdamSmith is right to point out long term trends in a open market just a few miles away... that isn't distored by a "single desk" as it is the closest benchmark he has to measure performance of his service provider!

The CWB needs the border to be closed to all information exchange to "designated area" growers... as well as to the movement of wheat south!

[AdamSmith]

Right on Tom,

Since the cwb doesn't use it's basis
to attract grain into the system or to offer a price signal to withhold deliveries, one has to assume that the basis levels are all cost related.

So I want to know what the cwb considers a cost. Do they consider it a cost to the pool accounts to offer farmers these programs?

Do they just assign an arbitrary value to that cost and simply take my money in order to give it to someone else?

If that is the case, shouldn't they clearly state that and call it what it is instead? It's money taken for the sole purpose of redistribution to other designated area growers and as such it is a tax on the users of the PPO programs.

$1.45 minus $.68 = $.77 per bushel.

Am I paying a 77 cent per bushel tax for using the PPO's instead of staying in pool accounts or are the costs of the single desk system more than double the open market?

Where did the money go?

[AdamSmith]

So the the independent nation of cwb has the power to tax it's captive citizens and it's prefered method is the use of sin taxes.

It's a sin to not pool, so they tax that activity.

It's a sin to export your own grain, so they tax producer direct sales.

So shouldn't there be full disclosure on where that sin tax revenue goes?

Looks like a job for the Auditor General of Canada.

So does having the CWB subject to the Freedom of Information Act allow a forensic audit of the cwb by the auditor general?

Tom, should we not be requesting this to occur immidiatly?

[craig]

Adam you make valid points but your concept of basis and what the CWB uses in the FPC and DPC contracts are two different things. If as you state the board should be charging an open market basis on these contracts( cost of getting it to port, admin, risk etc) then I'm sure producers could live with that. The problem is basis under these contracts is a charge levied to bring your price back to something near the Pool return outlook. Go and look at historic pricing info, basis only changes when a new PRO comes out. So if you sign a contract early in the crop year and the PRO climbs considerably you would assume that these accounts would show a surplus because the basis you were charged is not reflective of what the grain was sold at. This opens up a whole can of worms. I have asked the wheat board if they have done a proper risk assessment to determine what is an acceptable cap for the contingency fund. If the contingency is at the cap and that is enough to backstop the programs then why are we still being charged a risk premium. I also asked the board to give me a historic example of of where the CWB was in a position of being exposed to a high level of Basis risk. Again I have not received that information. From What I can find the programs are far more likely to show a surplus than a deficiet. Correspondence with the board also shows that their answer to the surpluses is to just let the contingency fund continue to grow. I thought that the CWB was to return as much money as possible to the producers. The reason that they want to let the contingency grow is because the only other option left is to dump the surplus into the pool accounts. So that leads to the next Problem. The CWB will claim that when you sign basis as part of your contract you are moving risk from the producer to the CWB. I would suggest that this is not true. You are moving basis risk to the contingency fund. The real moral question then who in reality should own the contingency fund. If you assume that surpluses accrue to those who have the risk then who is that. The pool accounts have no risk and therefore in my option should have no right to these funds. The CWB also should not have legal claim to these funds because the entity CWB was not at risk in these tranactions. If you claim they do then you are also suggesting they have the right to reward those who administer the programs. This then leads to the question is basis a legitimate cost to producers or is it just a tax on producers who use these contracts. This year I would suggest is where the problem is going to rear it's ugly head. If we assume the CWB is selling grain at present world values there is only one conclusion. This years accounts will show a massive surplus. Even if they are selling below that I would suggest there will still be a large surplus. Your CWB already has a solution for this: they are going to take over the fund and use it to manage payments to the pool accounts. How else can you be Santa Claus. If you step back and take a serious look you can see why the CWB is so happy with these Producer payment Options. It allows the CWB to play in the American Wheat Futures market with absolutely no risk to the Board( that's where you come in it's your risk). The fact that they have no risk does not preclude the ability for them to charge a very high premium (basis)to the users of the program. In the end they lay claim to those surplus funds and distribute to their friends in the pool accounts.How could anyone question this as fair and equal treatment of all producers.