FPC basis levels

[disker]

Hi Lee,
We talked this summer and you mentioned that the CWB was thinking about releasing how they calculate their basis. Has this gone anywhere because I am not understanding how the PRO can go up over $20/tonne and the basis widens. Every time that I have spoke with the CWB on basis they tell me its because of the dollar(I agree) and then because of a relationship in how much of the pool has been sold and at what price. Talking to them since the PRO they have told me that they have sold enough at these high prices to justify and feel comfortable with a higher PRO but what happened to the comfort level with the FPC basis. If the PRO went up $20/tonne the basis should have strenghtened nearly as much, besides they always have the adjustment factor to fix mid PRO changes.
I did some futures only on HRS and CWRW last winter and since the crappy basis numbers that came out in Feb. I have since lost over $15/tonne in CWRW and $10/tonne in HRS.
Just curious about the release of any info,
Thanks

[melvill]

Good question, disker. Up to now Board staff haven't been any more transparent about how they figure basis than they have been in the past.

However, Charlie and I have a meeting on Sep 14 with the CWB staff that set the basis. Hopefully we can persuade them to be quite a bit more forthcoming. I would think that, simply because of the PR thrashing the Board is taking, they'd be catching on that they absolutely have to be more transparent. You'd think they'd catch on that their future depends on it.

In the meantime, though, guys like you can help us by lobbying the h--l out of any and all directors and Farm Business Reps whose ear you can latch onto.

Try not to feel too bad that you got caught with weakening Board basis levels. There are lots of us in that boat - up the river without a paddle!

[winwin]

Lobby and plead with them to help them adapt.
Thats what we've been reduced to for 60 years.
And yet,the solution is so simple;force them to compete.And then all your begging becomes unneccessary.
You'll have the right to take your business eleswhere.And their evolution will be put on automatic pilot.
If they had to compete and didn't want to change--that would not be YOUR problem.That would,and should' be THEIR problem.

[kamichel]

How exactly is the dollar affecting the basis. The exchange rate is already calculated before the basis. Well cannot possibly be an excuse for the current basis.

[parsley]

Forcing the Board to compete IS the answer.

kamicahael, once you have an export permit in your hand, the Board either pays you a price you find attractive, or they do not get your grain.

There are many markets all over the world that actually WANT to buy your grain!

The CWB needs to be upgraded from their stoneboat,gestetner,arrest-farmers mentality


Until they do, FPC basis levels are a futile exercise in down and dirty trickery.

Parsley

[parsley]

melvill,

You are now part of the CWB's PR solution. I can read it now... "Alberta gurus and CWB honchos work out perfection for farmers".

Not.


The exercise you will be taking part in is just that, a PR exercise.

Not a solution for farmers.

Surprised you bought into it, melvill. By now, you should know how the CWB single desk mentality operates.

Your best garnering will be a nice little outing.

THat's not a negativer statement; rather, a pragmatic one.

Parsley

[kamichel]

Melville While you are at it ask them if they are now exporting CWSWS Wheat. They told me in the pasts that they do not export that wheat because the price worked back to producers would be to low. I wonder if that is how they can offer the price over feed that they are offering. I believe they must be fixed pricing a lot. Especially in my area price works much better than ethanol if have good quality.
Basis is currently minus a dollar eleven.

[rook]

On a related note, does anyone know what the adjustment factor is about? My understanding is that it is something in regards to signing up for FPC after the start of the crop year, when sales may have already been made under the pooled price. However, currently the FPC is lower than the PRO, and they are charging an adjustment factor. Does that mean the PROs are too high if they are still charging an adjustment factor? Is it based on anything concrete or is it just a way of keeping the FPC<PRO? Very confusing to me.

[melvill]

Oh, Parsley, you're too young to be so cynical. Actually, I'm fairly pragmatic, too. So making changes in anything is like building a house. One person does it one two-by-four and one nail at a time or a crew can do it many boards and nails at a time. It's not likely anyone can influence any organization to change without approaching all levels of the organization with well thought-out questions and suggestions and methodology for change. Just ask people that work for medium and large oil and gas companies in Calgary. Some of those staff are pretty frustrated with the slow pace of change there,too.

I view the Board in the same fashion. It's a large organization with people willing to change and others that aren't. Attacking people and orgs with slings and arrows is less likely to produce change than approaching them many two-by-fours at a time.

[melvill]

kamichel, I'm at Brooks, AB where a lot of SWS is grown under electric rain.

I haven't looked recently but, for a number of years, Canada wasn't producing as much SWS as we consumed so that wheat in Canada was priced on an import basis. In other words, SWS wheat was being sold to Canadian millers at a price higher than a comparable U.S. price - basically the U.S. price plus the all the costs of getting U.S. wheat here. Other side of that is that if Canada were exporting SWS wheat, those sales would be at a lower price - U.S. price less the cost of freight to get it there - and those export sales would dilute the pool.

Again, I don't know exactly where we are for SWS this year. The increase in acreage in "non-traditional" areas, in anticipation of strong ethanol demand, may move us, especially on the Prairies, to a domestic surplus situation in which case, we'd either have to export it or keep it on the farm.

Here endeth the sermon.

[charliep]

rook

Noted your question but don't have time to adequately answer (holidays tomorrow so cleaning things up).

You are right about the adjustment factor reflecting existing sales where money has been deposited in your pool accounts. It also is a recognition that the pooling process only occurs once a month. A markets rise within the month, the existing sales will look poorer relative to the current market and the drag factor becomes bigger. As markets fall in value, the existing sales look better/adjustment changes to reflect. It has become a counterbalance to stabalize the fixed price contracts around the PRO. Good, bad or indifferent is up for discussion.

Is this an indication of the CWB comfort with the PRO. Will have to think about. I use the EPO premiums (particularly at the 100 % level) as a better indication of risk.

[disker]

Charlie,
I could not agree more with you about the confidence level of the PRO. One would think that if that PRO was a confident one then the basis would have come back to a respectful level and they could have used the adjustment factor if the markets ran. I get the feeling that there is little confidence in that PRO number and they are just trying to appease the pool lovers and make them think they are going to get a decent return or they are scared to death that this wheat market may bolt higher and they would have $40/tonne adjustment factors that would cause a riot. Personally I would take a high adjustment factor for a month so that I could price out my futures only contracts.(HA HA)
If there was more confidence in the PRO the EPO numbers would be something more realistic.
I am trying to speak with someone at the CWB about these basis levels but I am getting the 12 secretary shuffle hoping I will just go away.
I hope people keep writing and thinking about these issues and don't get complacent just because the prices are higher. Losing 10 or 20 cents/bushel in these programs is still 10 or 20cents/bushel whether the wheat is $3 or $5.50
My thoughts
Disker

[charliep]

Perhaps equally important is the fact that most of costs are not market related but rather reflect the charge/premium the CWB charges to manage their risk (not the farmer who participates in the pooling system) relative to the pooling accounts. Part of this is administration, risk and time value value. Part is the cost of using futures, options and/or derivative markets. Part could be a potential profit center to either pad the contingency fund for down the road and/or deposit money in the overall pooling account (similar to 2004/05).

[charliep]

A birdie whispered in my ear that I should highlight today's adjustment factor on fixed price contracts. Ouch!

[TOM4CWB]

Disker,

I too am on a futures only pricing from January... the CWB is really going to clean up on the basis on us unless something happens real soon.

This connection between the pool and fixed prices... ESPECIALLY for those who forward price over 6 months into the future... creates a huge risk exposure. 2X an ordinary deffered delivery contract. I note the Ontario Board has a reasonable fixed basis for off the combine 2008.

The CWB is not providing reasonable services... they are simply dreaming up new and innovative ways of milking folks who can't stand or afford using the CWB pools...