Decision Time CWB FPC/BPC

[charliep]

Decision day CWB programs.

What are you going to do?

1CWRS 13.5 yesterday - FPC - #232.43 March basis (including adj.) - $20.11 over.

1CPSR yesterday - FPC - $184.59. March basis (incl. adj.) - $19.53 under.

1CWSWS yesterday - FPC - $161.85. March basis (incl. adj.) - $43.98 under.

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

[mcfarms]

Charlie

I think they extended things until Nov 4th for whatever reason.

[mcfarms]

crap I'm wrong when I look at the CWB site they extended A series sign up and Oct 29th for this
2010-11 Basis Price Contract: lock in a basis and futures value for your wheat at different times. The deadline for signing up a Basis Price Contract (BPC) is October 29, 2010. BPCs must be locked in by the basis contract month expiry date.

[mcfarms]

2009-10 Basis Price Contract: lock in a basis and futures value for your wheat at different times. The deadline for signing up a BPC is October 30, 2009. BPCs must be locked in by the basis contract month expiry date.

Sorry

[mcfarms]

THis is what I read

The October 31, 2009 sign-up deadline for 2009-10 CWB Series A delivery contracts, 2009-10 Identity Preserved Contract Program contracts, 2009-10 GrainFlo contracts, 2010-11 Churchill Storage Program and 2010-11 Wheat Storage Program has been extended to November 4, 2009 at midnight (CT Winnipeg time).


The basis lock-in deadline for the Basis Price Contract has been extended from October 30, 2009 to the Basis Contract Month expiry date. Expiry dates for each basis contract month are listed on the pricing schedules.

[dfarms11]

Charlie, I need cash flow so I need to do some basis contracts on my wheat. What reasoning do you use/ go by to pick which month to take? I will want whatever sales I have made to be cashed out by mid feb. I would also like some cash flow by spring. Is it prudent to have a basis contract for spring delivery or just wait and use an EPO? What are your thoughts? Or anyone elses?

[charliep]

I would likely go off the March or the May contracts. The CWB basis takes carry out of the market for the fpc (pays you storage). However the market itself can move back and forth between paying carrying charges and moving to an inverse (nearby contracts worth more than further out). July might move to an inverse as new winter wheat supplies hit the market.

With regards to the EPO, everyone will make different decisions. EPO premiums will come down as more crop is sold/time to the end of the crop year becomes less. Depending on your experience/willingness to try, I would consider the idea of using a replacement strategy. Today, you have premiums of $12 ish and $24 ish /tonne for 90 and 100 % EPO levels. You can use this money with an options strategy (buying calls on dips/pricing fpc into rallies) or be willing to endure this type of pain with a futures position (replacing an fpc with a long futures position with stops that limit ouch factor).

Would still lock in a basis contract today and look at the other alternatives down the road. To put my neck on the line, I would go off the March.

Here are today's values for making a decision.

<a href="http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/fixed_price/2009_index.html">fpc and basis nearby</a>

[charliep]

For what it is worth, here are 3 scenarios if you delivered 1CWRS 13.5 today. all priced port.

Deliver and take initial payment of $186/tonne. CWB suggests there are an additional $59 in final payments but no guarantee.

Deliver and price an fpc - $231 in pocket (or after 2 weeks). $14 less than the CWB forecast average price.

Deliver and take 100 % EPO. $219 in your pocket. You have the opportunity to participate in payments above $245.

[charliep]

to add another wrinklem, you can buy an at the money put for the following values.

MGE march 530 put - 36 cents/bu or Cdn $14/tonne.

MGE May 540 put - 47 cents/bu or Cdn $19/tonne.

Not suggesting doing either of the above today but you can likely get better value/low premium cost than an EPO by buying puts by paying attention/timing your purchase. You are still exposed to currency risk - could be good if loonie declines/bad if rallies.