I should let Tom4cwb speak for himself but what I think he is referring to is the move in basis. The worst basis you could have booked this past year is $10/tonne over (CWRS). The end of October basis was $30/tonne over. Depending on when you signed your basis and/or fixed price contracts, you will have different cash prices. Anyone who signed a basis contract in the summer and only has feed wheat/wants to buy out is facing some severe financial pain.
When a farmer buys out of a non board crop, the basic principle is replacement cost. That is, the farmer forward contracted for a price. When a farmer is not able to supply the contract, the grain company goes to the market and replaces the grain at a price. The gain or pain is the difference between the two. Changes in basis will be a part of this calculation.
When you have a CWB forward contract that is based on a relationship to a pooled price, do the same principles apply? That is (for those of you that don't know), the hedges for a fixed price contract are placed over a whole year, not just the month of the contract. An interesting note is the move from July 31 to October 31 deadline means that the fixed contract basis includes CWB sales that have been put on the books during the fall period(at least to the point the farmer signs a contract). This (I suspect) has been part of the basis improvement.
I am always amazed how people sometimes sign contracts without understanding the process and their commitments/responsibilities. Do farmers understand the process around the CWB producer pricing options? Is there a clear understanding of how the CWB determines basis levels?
When a farmer buys out of a non board crop, the basic principle is replacement cost. That is, the farmer forward contracted for a price. When a farmer is not able to supply the contract, the grain company goes to the market and replaces the grain at a price. The gain or pain is the difference between the two. Changes in basis will be a part of this calculation.
When you have a CWB forward contract that is based on a relationship to a pooled price, do the same principles apply? That is (for those of you that don't know), the hedges for a fixed price contract are placed over a whole year, not just the month of the contract. An interesting note is the move from July 31 to October 31 deadline means that the fixed contract basis includes CWB sales that have been put on the books during the fall period(at least to the point the farmer signs a contract). This (I suspect) has been part of the basis improvement.
I am always amazed how people sometimes sign contracts without understanding the process and their commitments/responsibilities. Do farmers understand the process around the CWB producer pricing options? Is there a clear understanding of how the CWB determines basis levels?
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