Back to the Contingency Fund

[jdepape]

One of my first articles was on the Contingency Fund and how the CWB has lost a lot of money in the fund over the years, particularly in 2007-08. The CWB has recently posted a comment on its website addressing what it refers to as “confusion” about the fund.

The CWB states:

"Resulting program losses put the contingency fund into a deficit, which necessitated a transfer of funds from other CWB revenue sources.

This did not result in a loss to producers. Producers received every penny they contracted through the CWB’s Producer Payment Options, and also received near-record net returns."

To be clear:

• The CWB says it transferred funds from other CWB revenue sources, specifically, $27.6 million from the pool accounts. The following year, the CWB repaid most of this money ($18 million) back to the pool accounts. Therefore, farmers in the pool accounts were without the benefit of this money for a full year; at the very least, there is an interest expense (loss) borne by farmers.

• Producers did indeed receive every penny owed to them through PPOs; that was never in dispute.

• The fact that producers received near-record net returns that year was also never in dispute. But think about it – in 2007-08 the CWB lost $90 million in PPOs (coming out of the Contingency Fund) as well as $226 million in “discretionary trading” in the wheat pool account. Whether the total revenues of the CWB were $7 billion or $7.3 billion isn’t a factor here. The size of the total revenues is not an effective argument to try to explain that farmers did not lose money. They did. The near record revenues, as good as that sounds, would have been even a little better if it weren’t for the CWB’s ineffective hedging strategy and discretionary trading losses.

<b>Everything the CWB does is supposed to be for farmers. So, when the CWB loses money in the Contingency Fund (as it has stated), who’s money is it, if not farmers’?</b>

[bucket]

Discretionary trading. Never has been explained to farmers.

226 miilion is as mauch as the feds gave out this spring for unseeded acreage.

Pretty substantial loss that was covered from what account. That's right - farmers final and future payments.

[jdepape]

Discretionary trading = speculating

[bucket]

jdepape

Can you explain why the cwb has to engage in the markets to cover their/our risk?

They buy a bushel of grain from us (captive) western farmers and pay us nearly nothing for it. Then they sell our grain to a customer (lets say Japan)and get paid in full. They pay all the leeches in between. Then a year and a half later pay us the rest.

Currently the initial is 1.50 to 2.00 a bushel and they are selling wheat and durum for over 9.00. There is no risk so why use futures?

This is a license to print and waste western farmers money.

Sell wheat at thunder bay for 9 bucks minus 1.70 for freight and elevation and the advertised price of 10 cents a bushel for marketing services, we should be seeing 7.20 for wheat right now, no risk sales.

Please explain.

[cchurch]

I love how without the CWB all handling and freight charges will be removed.

[bucket]

Actually for some producers it will be.

For those delivering directly to the mills the only charge they should have is the freight.

Elevation at the mills should be the millers cost. Ever see a farmer without an auger?

[jdepape]

Bucket:

The CWB has a “pricing pace” policy that drives its pricing – it’s meant to provide an average price over the crop year (more or less). If sales are slow relative to the pace, the CWB will sell futures to price – to keep with the pace. When sales are brisk, the CWB will buy futures to keep the net being priced within the pace. BUT – the CWB management has some leeway and can price a bit faster or slower than the pace policy says. And this is partly where they got into trouble ($226 million worth).

cchurch:

I don’t know what you’re reading – nobody said anything about handling and freight charges being removed if the CWB was gone. But I will say, you could expect them to be lower.

In 2008-09, Western Canadian average “net-backs” (handling, cleaning, CWB expenses, etc - excluding freight):

CWRS = 28.91
Durum = 48.47
Canola = 5.65

The reason canola is lower – competition and no CWB costs.

With CWB grains you get a double whammy - higher handling costs because grain companies are limited to how they can compete and higher costs because you're paying for the CWB.