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M-O-N-O-P-O-L-I-E-S CWB/AWB... Speculation VS Hedges

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    M-O-N-O-P-O-L-I-E-S CWB/AWB... Speculation VS Hedges

    Charlie and Chaffmeister,

    In the article below USW Alan Tracy goes through some basic use of futures contracts to manage Risk.

    The sale of CDN malt barley for 2007/2008 by the CWB... at almost, $100,000,000.00 ("the "high tens of millions" of dollars, Meijer said") below market value to CDN Maltsters, is hard to justify;

    As either Speculation or a Hedge...

    According to the Roberta Rampton (Reuters) April 23/07 article... The industry buys about half of the CWB's malting barley supplies and exports more than C$200 million ($179 million) of malt per year.

    QUESTION... How much 07-08 Malt Barley did Measner sell before the CWB Minister finally got rid of him?

    1mmt in 07-08 sold to the malt industry... at a $100 million dollar loss?

    What normal sane person would call this CWB action anything but: "The vindictive action of an arrogant m-o-n-o-p-o-l-y... against the very producers it claimed to serve."

    Much of what Alan points out about the AWB... has many applications to the CWB as well.

    http://www.uswheat.org/justReleased/doc/9DF0B349B188AC38852572C2006E65BD?OpenDocument#

    7. Editorial: Is AWB a hedger or a speculator?
    by Alan Tracy, USW President

    Australian news outlets are reporting that AWB had massive losses in the U.S. futures markets last year, apparently running into the hundreds of millions of dollars. AWB documents leaked to the media show that managers thought about covering the losses out of pool funds from the 2006 crop. This was in October when, in the face of the Cole inquiry, the future of the monopoly was in doubt. So the managers apparently rolled the losses forward in the form of a lower initial price for the 2007 crop – a crop AWB was aware it might not control. Either way, Australian growers would take the hit for AWB's mismanagement. An AWB spokesman said the "hedging exposures" of late last year had been "actively managed to minimise impacts on the national pool." Right. In our view, there is no shade of lipstick that can make this pig look pretty.

    The AWB repeatedly refers to its activity in the U.S. futures markets as “hedging,” or risk management. Just what is a hedge? International grain exporters normally buy futures at the same time they make sales, and then they sell the futures back as they buy the actual grain for the shipment. Or, U.S. growers frequently sell futures as they invest in a new crop, to protect against any price drop. These are true hedges, minimizing exposure to the market by transferring the risk to speculators. What AWB did is similar, except for the important distinction that it was not pricing the crop acquired at the same time it was selling futures. As a monopoly, AWB calculates the "cost" of the grain it acquires, but not in full until the whole crop is disposed, when it deducts its operating costs and sends whatever is left over to the growers as a final payment. For AWB to sell futures in advance of either taking ownership of priced grain or setting its acquisition cost is not a hedge at all; it is speculation, pure and simple – speculation that is completely at the Australian growers' financial risk. To then buy some of those futures back without selling grain to offset them, as AWB apparently did, is also not hedging; it just locked in their losses.

    AWB uses the term "hedging" to make speculating with Australian growers’ money sound like prudent management when it is, in fact, egregious mismanagement and a violation of the trust that growers placed in AWB when they delivered their crop. It sounds to us like another famous AWB euphemism: "single desk" in place of M-O-N-O-P-O-L-Y. "Single desk" sounds so much like a sound business practice, while "monopoly" implies a company that manipulates prices for its own benefit and, in this case, manipulates facts to curry its own image. We hope the term "single desk" soon disappears. We also hope Australian growers will soon get the opportunity to sell their crop to whomever they wish – and to risk or to hedge it themselves, as they choose."

    #2
    Couldnt agree more as usual t4.
    $300,000,000 to be exact.

    The federal treasurer announced yersterday that awb has forfieted there right to the single desk and veto powers and a decision by govt has been made about future of wheat marketing.

    But that was it will await rural media reports tommorow

    big rains forecast almost aust wide tommorow and 3 days to follow

    Comment


      #3
      Couldnt agree more as usual t4.
      $300,000,000 to be exact.

      The federal treasurer announced yersterday that awb has forfieted there right to the single desk and veto powers and a decision by govt has been made about future of wheat marketing.

      But that was it will await rural media reports tommorow

      big rains forecast almost aust wide tommorow and 3 days to follow

      Comment

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