CWB changes terms of PPO contracts

[TOM4CWB]

Dear Charlie,

Isn't this changing the contract in the middle of the year?

"New! Effective October 13, 2009, the CWB has extended the basis lock-in period for the BPC program to align it with the futures lock-in deadline. Both the futures and basis components must now be priced by the basis contract month expiry date. (Basis contract month expiry dates are listed below.) Previously, the basis lock-in deadline was October 30, 2009.

If either the futures or basis component of a BPC is not priced by the basis contract month expiry date, the CWB will price the contract at the value posted on that date. Producers with a basis-first BPC have the option of rolling to a different futures month prior to the basis contract month expiry date. Futures-first BPCs cannot be rolled."

ISN't This is like an exchange changing futures contract terms in the middle of the contract year?

[rookie]

Tom, I can't find this on their site??

With the exception of not being able to roll from month to month. This isn't bad is it??

Other than the fact it's the same old bullshit from those bastards, you don't know from one minute to the next where you stand with them.

Spoke to a CWB agent the other day on the phone about BPC contracts, he went on to tell me how he can't understand how in this world a farmer knows where he stands financially by using the PRO option. He felt it needs a overhaul!!!

Oh my Oh my!!!

[TOM4CWB]

Snappy,

It sure looks like the CWb 'bluffed' the BPC contracts that were unpriced into locking in.

Clearly if many folks had known the new rules... months ago... different actions would have likely been taken.

It appears the pools have been repaid... so the PPO basis can revert to more normal levels! Not a bad thing at all! Ian White is finally bringing the CWB around to a more commercial trading based system!

For that I am thankful!

I got the info straight off the CWB web site on FPC/BPC contracts!

[TOM4CWB]

http://www.cwb.ca/public/en/farmers/producer/0910bpc/

[Kodiak]

The bottom line change as far as I can tell, is you still have to sign up for a BPC by October 30, but you can lock in the basis anytime after that - depending on which futures month you want to be priced against.

I think this is a positive step, but it still does not come close to the flexibility and options available in the open market.

Now that they've gone this far, has anyone checked with them to see if they will consider delaying the sign-up period (past Oct 30) due to the late harvest? I can't think of a reason why it would mess up operations on their end to do so.

I'm reluctant to sign any PPO until I know what I have, which won't be until its in the bin and that might not be until November at this rate.

[charliep]

My interpretation of this change is a farmer now has the same privileges on
a futures only prices bpc contract as on a basis bpc. That is, the ability to
lock in a basis over a longer period (ie. up to about the 20 th day of the
month prior to expiry month) after you have locked in the futures side.
This is similar to the basis contract where you have been able to watch the
futures side/lock in when you want. Prior to the announce, you have to
lock in the basis on a futures only bpc by October 30. Could be wrong
here.

If this is the case, the announcement is simply window dressing with little
to any practical value. Who in their right mind would lock in the futures
side today and let the basis slide in today's relatively good basis
values/uncertain world of the future where the CWB has complete control
over basis with no competition/tie to a real price/market value?

Regardless, you get the adjustment factor on the day you sign the contract.

[charliep]

I will work through an example.

CWRS producer payment option.

Fixed price contract Friday. - $225.63/tonne port
including $5.63/tonne adjustment factor.

Lock in March basis of $12.70/tonne plus
adjustment of $6.63. You have to Feb. 19, 2010 to
lock in the cdn$ MGE March futures.

Lock in a futures prices of $207.20. You have until
Feb. 19, 2010 to lock basis in. You have locked in
the $5.63 adjustment factor. Prior to the
announcement, your basis would have been locked
in October 30.

Again the question why?

[TOM4CWB]

Charlie,

Interesting thoughts... why?

The Oct 30th date... created an artifical 'pinch point' (under old rules) that the CWB avoids now... with these new rules!

It certainly makes some less pool risk... with the new system. The basis risk is tough to deal with... when back to back sales are only allowed for the pool... as are the PPO grains bought from growers. If a big spread change happens in the futures... the basis can be adjusted to suck that risked margin back.

If the CWB thinks we are all still going to believe the mantra that the PPO contracts do not affect the pool... they should think again!

How on earth can the CWB lay off huge sales/pool risk... created by their PPO's... when the basis is locked in by the grower? Delivery and the sale of the actual grain could easily be 6-12 months away.

The only hope the CWB has... is to make the pool more attractive than PPO's... to try to prevent growers from flat pricing.

[charliep]

The answer to your second last paragraph question is to widen the basis out
to include a large risk factor. If they are wrong, this money gets deposited in
the contingency fund first and from there into the overall pooling accounts
(after the $65 mln cap). That is the mechanical side that is visible. You are
also right the ppo risk management strategy is tied to their overall
sales/pooling risk plan with unknown implications and consequences.

I note today a September 1CWRS 13.5 PRO of $245 port, an fpc value of $225
about and a converted MGE futures of $200. Something doesn't make sense
to me here but no one seems to care. Suspect that the October PRO this
coming Thursday will bring some of this back into line with a $10 to $20
further drop in the 1CWRS 13.5 forecast likely inspite of the converted MGE
futures have remained relatively stable at $200 over the past month.

[charliep]

Maybe someone help me understand a 1CWRS basis that has moved from $30 under in June to $25 over (including adjustment factor) today.

[URL="http://www.cwb.ca/public/en/farmers/producer/historical/pdf/2009-10/2009-10fpcbpccharts.pdf"]historical charts 2009/10[/URL]

[charliep]

Contingency fund is $60 mln and not $65 - sorry about that.

[URL="http://canadagazette.gc.ca/archives/p2/2006/2006-08-09/html/sor-dors173-eng.html"]contingency fund maximum[/URL]

This is an important as reflects how the B of D will try to recoup the pain to the overall pools from the 2007/08 crop year by grabbing
money from the contingency after it reaches this maximum in the contingency and directly depositing into the overall pools. Bad on a
whole bunch of different fronts including moving money between pooling years.

[Hopperbin]

If someone can explain the CWRS basis going from June 1 minus .61 cents to Oct.16 plus .51 plus Adj. factor of .15 cents to total plus .66 cents for Oct.16. That is to the positive of 1.27 dollars per bushel over that time period.
If can explain that then try explaining this CWSWS wheat basis June 1 of minus 1.23 to Oct. 16 of minus 1.07 plus .15 cents adj factor to total minus .92 cents for Oct. 16. That is moving to the positive of only 31 cents over that time period.

[charliep]

I ducked your question last time and I'm going to do it again likely
because I don't know but maybe a little because your marketing agency of
which you are a stakeholder should provide this information. You have
noted the open market price but I might ask what western Canada flour
mills are paying and the percentage export versus domestic usage. The
pooling system has nothing to do with price and everything to do with fair
(at least in the CWB operations side) distribution of revenue.

[Kodiak]

So Charlie, has anything changed under the scenario where one locks in a basis only?

Previously, we had to lock in the basis (had to be done by Oct 31 when the sign-up period for BPC's was over) when we signed the BPC. My read of this new wrinkle is now we have to commit the tonnage by Oct 31, but can leave the basis open - and can lock it in with the same times frames applicable as locking the futures portion. Have I read it wrongly?

[charliep]

I didn't read it that way but I could be wrong. If you
could leave basis and futures open, it would
effectively be the Flexpro with 4 extra months to make
a decision (actually even knowing grade), a commited
pricing period and the adjustment factor on the day
you sign. It wouldn't make sense to do it this way but
can't say wouldn't happen - stranger things have been
known to happen with CWB programs.