CWB PROs

[nashty]

Looks like the CWB is posing as Santa Claus- and all malt growers have been given a huge gift-$2/t on the PROs, but a lump of coal is in order for the wheat growers.....

[chuckChuck]

Nashty. So who do you blame when the price of non-board grain falls? When all else fails, blame the Wheat Board.

[charliep]

chuckChuck

I would take it you are happy with current initial payments/forecast finals? How do you benchmark these payments to know the CWB is managing your price risk/getting you a reasonable return for the year?

I use some of the CWB own numbers to measure their performance. The daily price contract is based on a CWB survey of north state wheat prices. Based on CWB prices, I note there is anywhere from a 50 to $1/bushel premium to current the CWB PRO and FPC offerings. Help me understand the difference.

I can also phone a maltster and find out prices they are paying the CWB pooling system for malt barley. They are likely (haven't checked lately) at least a buck bushel higher than the current malt barley PRO. Where does the money go?

[carebear300]

Nobdy knows for sure. Maybe the contingency fund? Maybe the severnece package for Measner? Maybe the Liberal pary of Canda election fund? That my friends is the problem nobody knows for sure!!!!!!!!

[chuckChuck]

charliep. Since the pool returns reflects values in all our markets
(some lower and some higher) over the entire sales year why would you expect it to be equal to spot market prices in 1 market? Does everyone sell their non-board grains at the peak of the market? The answer is no, so why would you compare pool return prices to only the North American market? It would be great if we could all sell all our product in the US or to Canadian maltsters but we can't. Richard Gray suggested several benchmarking options and the CWB Board of Directors sees all sales contracts with each sale compared to the competitions prices. Whether you believe the CWB maximizes returns or not is up to you, but Kraft, Furtan, Tyrchn.. Gray, Fulton and others have determined through economic analysis and study that the CWB achieves a premium over what multiple sellers would. That does not mean that spot prices would not sometimes be higher in the US. But we cannot all get those spot prices, it is impossible.

[liberty]

The more I look into the daily price contract the more I have to come to the conclusion that the CWB offers it merely as window dressing. You'd have to be in dire straits cash flow wise to even consider taking this option. In practice, this price signal is pretty much useless to farmers.

Because of the CWB monopoly, there's no incentive to offer a DPC that more closely reflects current market conditions. In fact, there's an incentive to make it unattractive: it's a lot easier, in terms of effort and risk, for the CWB to simply shunt producers into the pools.

[liberty]

"Since the pool returns reflects values in all our markets...over the entire sales year why would you expect it to be equal to spot market prices in 1 market?"

In answer to this question, the wheat board offers what is essentially a "spot" price in the DPC and it's nowhere near what similar markets offer that are very close geographically. You don't see this kind of divergence in non-board crops.

I've also done some investigation through the U.S. Wheat Associates website by comparing PNW port prices over the period of a crop year with the CWB's total payment, after adjusting for the value of the Can$. My study is not exhaustive, but thus far I've found that the CWB pooled price was about the same as for PNW ports in around two months of the crop year (2005). The rest of the time it varied up to a dollar a bushel less on our side of the border. Where are the premiums for Canadian producers? I'm not even finding them at port position.

Which brings me to the next point that this reader raised: "...the CWB Board of Directors sees all sales contracts with each sale compared to the competitions prices." If that is all the argument for the CWB "premium" is based on, and I gather that this is the case, then the argument is hugely flawed. It's only looking at maybe 1/10th of the picture. It's as if I judged the performance of my farm by only looking at gross sales receipts, and ignored my costs of production.

Every sale in any industry incurs costs. In the case of the CWB, did the directors look at things like how much it cost to transport, blend, and handle the grain for each sale? Did they independently check the grade for each sale to verify that the CWB doesn't engage in "grade giveaways"? If the sale was made by an accredited exporter, what was their commission on the sale? How does that compare with their service costs for other commodities? I haven't heard a peep out of any director on these issues. I get the impression that this is information the CWB may be reluctant to let out to anyone.

[charliep]

liberty

Don't ignore the daily pricing contracts. Anyone who has used the program over the past two years will put at least 50 cents a bushel in their pocket over and above other programs for the amount they contracted. Again, I encourage you to look at the historical charts and let them speak for themselves.

chuckChuck

I understand the CWB payments are a blend of prices starting with CWB sales prior to harvest and sales at the end of the crop year that are sold in competition with new crop North Hemisphere wheat. I simply note the Daily Pricing Contract is consistently higher than any of the other pricing tools. It is also money in the bank versus a vague promise. Promises and academic studies versus a real price.

I will bet a dinner (or perhaps a bottle of your favorite malted product) that the CWB will not achieve the current 2006/07 PRO forecast for 1CWRS 13.5 when final payments are announced December 2007. I am being a chicken here given low wheat carryovers/bullishness in other crops - any other time, I would have given you odds.

Didn't answer the question on malt. Everyone will be asking this question in January and February.

[charliep]

liberty, I hate the CWB to be blunt. But I'm forced to sell through them. I don't quite see myself how you figure to use DPC's you would have to be in "Dire Straits" for cash flow??

Anybody who looks at the historical charts can see it is a paying proposition. It's sad that guys that don't use FPC's and DPC's reap the rewards for those of us that do use them.

[disker]

Nashty, it sounds like you lost another bet on those Pro's, worse than betting on the Oilers. Besides, maybe its better now that the CWB keeps the Pro's low so everyone doesn't forget and get the big screw over like they just got on their finals.
Disker