CWB conference call on contingency fund

[classicalliberal]

If they were really hedging, they would have an offsetting $160 million or whatever the number is in cash gains to offset that risk. Something tells me that they were not actually hedging.

[chaffmeister]

Let's cut through the BS in the PPOs:


04-05
Grain sales revenue minus what was paid to farmers: $17.7 million LOSS
hedge accounts: $56.9 million GAIN

CWB staff: "The algorithm in the hedging model worked extremely well this year, generating income over 3x the losses seen in grain marketing."

CWB director: "How did you make over $1.65/bu on the hedges when the most that the market moved last year was less than $0.70/bu?"

CWB staff: "The algorithm in the hedging model worked extremely well this year."

CWB Director: "Oh, OK."


05-06
Sales revenue minus what was paid to farmers: $4.6 million LOSS
hedge accounts: $1.0 million LOSS

CWB staff: "The algorithm in the hedging model was ineffective due to unforeseen market conditions".

CWB director: "How did you lose in both grain sales and hedges?"

CWB staff: "The algorithm in the hedging model was ineffective due to unforeseen market conditions".

CWB Director: "Oh, OK."


06-07
Sales revenue minus what was paid to farmers: $29.7 million LOSS
hedge accounts: $3.8 million LOSS

CWB staff: "Oops, I did it again".

CWB director: "Oh, OK."


07-08
Sales revenue minus what was paid to farmers: $392.9 million GAIN
hedge accounts: $471.1 million LOSS

CWB staff: "The deficit stems from the "extreme volatility" of futures and basis values, plus a forward inverse in market values from December 2007 to March 2008, which created risk-management issues for the PPOs, blah, blah, blah...."

CWB director: "I think we should get someone to look into this."


Ya think?!!

[classicalliberal]

more like the basis went against them or they bought cash grain AND bought futures at the same time which is double the exposure that their hedging algorythems can forsee.

[charliep]

I see lots of political digs and shots but encourage everyone to follow the money in the annual report. Also note this conference call was about the pricing payment options/the contingency fund. This is separate from the $169 mln/$226 mln on the discretionary commodity trading.

With regards to the contingency fund, read page 67 carefully and follow the money. Already done somewhat but to repeat maybe for my benefit to help me think (summarize page 92).

$9.2 mln was beginning balance in the contingency from 2006/07.

The loss during the year was $86 mln.

$20 mln was transferred in from profits on cash trading activities.

$2.1 mln was interest earning on feed barley from old sales.

$7.5 mln was money given back from the 2005/06 pooling year when the money exceeded the contingency cap and was deposited in the pooling accounts (farmers who delivered that year thank you).

$18 mln was brought in from the pools for reasons described as follows: "THE BOARD OF DIRECTORS DECIDED TO ALLOCATE REVENUE FROM THE POOL DEED TO BE ANCILLARY TO GRAIN SALES (APPROXIMATELY $18 MLN)."

$28.9 mln will be carried forward into next year as a deficit on the contingency fund books.

As highlighted in another thread, it would interesting to know the current balance on the producer payment option contracts and how much of the deficit will be paid off in the current pooling year 2008/09. Guess I have to wait for a year to find out.

[charliep]

Wrong year on the $7.5 mln was from 2004/05 (see 2004/05 annual report).

[charliep]

Kind of weird but I note the performance measures knocked off $61 mln on
the discretionary trading losses ($169 mln reported versus $226 mln actual
because of quote "losses that were not truly achievable in the marketplace"
- page 45. Perhaps the $18 mln reduction in the PPO losses was apart of
the $61 mln - the PPO program would face similar pressure/problems in
managing risk. Hopefully the losses were not double counted or even worst,
applied to the PPO as a cost and really reflected to the overall pooling
system as an offset to their losses.

[chaffmeister]

How can you have "losses that were not truly achievable in the marketplace"?

Do they realize they aren't supposed to try to "achieve" losses?

[parsley]

"$169 mln reported versus $226 mln actual"


I have difficulty with this charliep.

This smells.

Pars

[parsley]

ANCILLARY

If you want to see where people are headed, examinbe their choice of words:


http://en.wikipedia.org/wiki/Ancillary_revenue


Can't you just picture scheming legal beagles' clutching fingers looking for additional sources of income? Yes, I can. ......Pooling accounts. Yup

And there are a trio of reasons why it happens. In Canada. In 2009.

1. Fancy words
2. Complicit accountants
3. nonproducers@progesteronefreezone.ca

[parsley]

"ALLOCATE REVENUE FROM THE POOL"

Breach of trust, charliep?

Pars