CWB Daily Price Contracts

[TOM4CWB]

Charlie,

I see the CWB plans a Daily Price Contract to be added to the PPO's via a news conference tomorrow.

Too bad we were not given a clear message at the begining of the crop year... on what we were to expect!

Refunds on PPO futures gains, that were strictly forbidden at August 1, 2004.

A drop dead date on cash/basis pricing of October 31, 2004.

Now we get one day's notice!

[charliep]

Changes announced today but will not start until 2005/06 crop year. Only applies wheat ex durum pool. Average US elevator price adjusted back to Canada. Devil is in the detail. I understand will be one posted price with spreads applied to proteins, grades and classes. 500,000 tonnes maximum the first year.

[TOM4CWB]

Charlie;

Anything is better than the system of basis contracts the CWB has implemented to this point. Simply put the basis contracts stink.

For instance:

If I took a basis contract on July 30th 2004, it was $11.61/t above March 05 futures.

The quoted price is $156.39/t, added basis = $168/t for a #1CWRS 13.5.

I checked the buyback today, and the US producer direct price is $202.38/t for a missing $34/t. Even with the best possible basis, Oct 29th 2004, it only adds $15/t to this price... close to $20/t short any way it is sliced.

Now if we go to a cash price on feed wheat under 58lb/bu, done on a July 30th basis, it works out as follows:

$156.39/t $11.61/t basis = $168/t

Subtract the Basis spread between #1CWRS 13.5 and Canada Feed Light weight= $110.45/t discount basis.

THis has an added Feed discount of $13.44/t from the Feb 14/05 schedule for a grand total basis discount of $123.89/t.

$168/t Vancouver in store, minus feed wheat discount of $123.89/t = $44.01/t in store Vancouver.

Average freight and handle from SK. is $54.45/t according to the CWB.

Which means a "designated area" grain farmer must PAY the CWB over $10/t to deliver 57lb/bu wheat today under this CWB contract.

Will the new Daily Price Contracts resolve these issues?

Being that this option must be signed up by July 22nd 2005, well before wheat quality is known... a large question remains!

Chairman Ritter used a Quote by JFK... saying that "20% of people are against everything, all the time"

A CWB daily cash contract price that actually worked... would be something any reasonable person would support!

Signup by July 22nd 2005 for the 2005-06 crop year, is simply not acceptable!

[JACKFLASH]

I agree that the deadline to sign up is unacceptable. July 22/05 is too late. Wheat prices traditionally are slipping big time, by then. Move it to March 15/05.
Usually then there is some sort of weather rally that could start on US futures.
That is where you would start pricing new crop wheat,say 25%.
CWB is dooming the program so a user will come in under the pooling program. Can't let anyone get ahead.

[craig]

I have a question for Charlie. Are the details of the program available and from where. I listened to the news conference but it was vague on detail. The simple question will be can a producer in Lethbridge lock in something similar to what is being offered a producer in Great Falls. The conference also brought up an interesting issue. Suggested that the contingency fund for non pool transactions currently sits at over $18 million. Yet they still talk about hedge risk and the need to place some value on that. Is there any guidelines as to this contingency fund , how big it can get and what it can be used for.

[melvill]

craig, your contingency fund question is a good one. My guess is that someone - some company of risk management specialists and actuaries - outside the Board helped them with the fund design - it's probably supposed to "break-even" over the "long run". However, it would be interesting to know how the "long run" was defined and if there is a plan in place to deal with fund surpluses (and deficits).

Would be a good question to put to the Directors at their CWB accountability meetings. The Lethbridge meeting is March 23.

[TOM4CWB]

Jackflash,

At the WBGA/WCWGA convention we were educated by Bruce Webster, OWPMB past chairman.

The Ontario wheat producer is required to sign INTO the pool account by Sept. 30th... and can cash price anything the rest of the year.

Because the Pool volume is known by the end of harvest, the OWPMB can effectively risk manage the pool, and extract large premiums. CWB pools are an average price, PRO's track market conditions even today... for 04-05... and do not seem to reflect a pool that has been risk secured and managed. This reflects the CWB mentality of being a BULL... but a steer may be a more appropriate term... as we always seem to be getting slaughtered on the down side risk of the market!

[timm]

what about the 14.15% export duty on HRSW

[TOM4CWB]

Timm,

I think the Hard White wheat (which has no 14% duty) PRO/Premium is a interesting signal.

Either the CWB is not loosing a significant amount by the lack of southern movement to the US,

OR the Hard White PRO and returns/premiums are a massive hoax.

Interesting that the PDS buy-back on Hard White to the US, and CWRS... are the same.

CWRS Flour being shipped south from Canada has no duty...

The US duty has been a comfort for the CWB... in that it takes almost all the pressure off the CWB on export licenses from western Canadian Red Spring Wheat!