trying to understand CWB fixed price!!!

[lesm]

On Nov. 26, I could have received $6.61/bu for #2-13.5P based on Minn trading @ 7.65 CAN. Come Dec.3, my wheat was worth $6.98/bu based on Minn. at $8.42/bu.-lost $.40/ bu in the last 6 trading days. Any directors/CWB supporters care to take a stab as to what happened to my money. Could it be that the biggest crash took place after all the ballots were mailed? Mr. Harper, I beg of to please fix this broken system!!!

[TOM4CWB]

lesm

With the CWB... more is less.

even though there is very little 2CWRS harvested... the FPC lost BIG time BECAUSE initial price went up.

Obviously the #1CWRS 13.5 did not change because the spreads changed... but every other lower grade lost.

Further the CWB is lowering the basis premium.

It is simply crazy to use CWB pool initial spreads... as a determining market signal for the PPO contracts. Yet the CWB continues the insanity.

[ado089]

you sound like a greedy farmer. When you figure it out can you let the rest of us know.

[ajl]

Warning: trying to understand CWB fixed priced contracts is harmful to your health. But here goes: CWB has cronies that need your wheat and they can't afford to pay world market price so basis spreads have widend. To be fair you the same thing happens in canola as well since grain co widen their margins when futures surge. One solution was to sign a BPC in early Nov. and then price on a futures rally.

[charliep]

The main reason for the differences between the november 26 and december 6 is widening of spreads in initial payments. If I can read tables properly, 1CWRS 13.5 got a $1.86/bu adjustment payment. 2CWRS 13.5 got a $1.55/bu. Would have to look at the FPC to determine what the market change (read futures) and basis change was. No time now but you can do.

[URL="http://www.cwb.ca/public/en/farmers/payments/pdf/2010-11_bushel.pdf"]initials[/URL]

[TOM4CWB]

Charlie,

I posted it on the weekend

Between Nov 30 and Dec 3 the CWB basis on CWRS dropped in value close to $4/t.

[charliep]

Voila. You have the 40 cent/bu change.

[charliep]

Links to the 2 fpc dates.

November 26: futures - $281.22. Basis - $35.30 over. Adjustment minus $1.73.

[URL="http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/fixed_price/fbpc-wheat-2010-mhrs-20101126.html"]nov 26[/URL]

December 3: futures - $309.30. Basis - $31.81 over. Adjustment minus $12.63.

<a href="http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/fixed_price/fbpc-wheat-2010-mhrs-20101203.html">dec 3</a>

[charliep]

Oops. Not addressed to me. Never ask a mechanic a technical question. They love to tear things apart/understand how it works.

[cottonpicken]

Dumb question-anyone know what percentage of
farmers are using the various pricing options?

[charliep]

The information is in the annual reports.

CWB staff will share as well is asked - quite often have a slide in their presentations (not confidential).

Will ask the question for 2009/10 and 2010/11.

In 2008/09, about 1.8 MMT was priced using fpc/bpc and a 308,000 tonnes under an epo out of total CWB reciepts of about 23.2 MMT that year - just 10 %.

In 2007/08, the percent was closer to 30 %.


[URL="http://www.cwb.ca/public/en/about/investor/annual/pdf/08-09/2008-09_annual-report.pdf"]see page 64[/URL]

[cityguy]

lesm -

Won't take issue with the harmful to your health comment from others but also don't agree that it's a function of the initial spreads as to why your cash price to futures has changed so much since the day the PRO's came out in November. First off is the fact that in November the futures that the CWB was using was the December futures. When they got to the end of November, or December 1st not sure which, the CWB started using the March futures. Given a 20 cent carry in the December to the March there was a 20 cent widening of the cash basis. It's the same in any other non-board market in that when you roll to the next option at a carry, you get a different basis when it gets adjusted.

The more problematic change is in the adjustment factor. When the CWB did their November PRO the adjustment factor was virtually nothing - basically the CWB telling you that the combination of sales on the books and expected sales values were about where the PRO was. Unless you have a FlexPro on, and have told you don't intend to price in the pool from the start of the crop year, the CWB "adjusts" FPC's back to where the average sales are expected to be. Today the CWB says that they've already sold 40% of the wheat. So if the "market" is up $35 over a short period of time then the CWB basically says, "OK - you can opt out of the pool, but you have to pay a 40% X $35 to get out today". Conversely, in theory, if the market were to be down $35 in a short period of time then the CWB would pay you 40% X $35 when you opt out of the pool into the lower market.

No doubt there's a better explanation out there for the adjustment factor but again, harmful to your health if you want to know exactly how it works.

Hope this makes a little sense and helps.

[TOM4CWB]

Cityguy,


In the Eskimo talk simplified... you deserve and Eskimo Pie!

Bravo!

I was myself going to try to explain the adjusment factor change... well done!

[Daylate]

i hate the manipulation of the fixed price (adjustment), or w. from thursday dec. 2 to friday dec. 3 they increased the adjustment to take 75% out of the market gain that day. They must have realized that day that they sold too much for too little.
I took it as a hint and fixed price anyway on 55% of CWRS crop. I hate trying to put myself in the shoes of someone who doesn't understand my business just to figure out their signals instead of open market signals to make decisions for MY farm.
My theory is this... The 40% they say their at is BS whether they consciously think about it or not. If I really thought they were 60% unsold I wouldn't have fixed but this 40% is based on what they are expected to pool. When in fact the percentage of CWRS that is coming out of the pool into the PPO's is going to be well above avg. then combine that with the program that they announced that enables you to cancel contracts in lower grade wheat or wheat that isn't grading what you contracted for a lower fee that any other year in recent memory and WAMMY!!! $#@!ed up POOL
This is why 90% of my marketing time goes into none board grains, because even if you can figure out how to undo what we payed them to do they still kick you in the balls. Daylate,

[charliep]

As requested, someone on the single desk side can explain the program
better than I can.

Watching over time however, the adjustment factors function seems to be
to be to bring daily futures price swings back towards the PRO. Another
way of thinking is to reduce volatility.

On the initial payment payment, work the numbers before and after the
adjustment. The fpc process again is you deliver and get the initial
payment for the wheat you are marketing (class, grade and protein). 10
working days or so later, you get the difference between the fpc you
locked in whenever in the past and the initial base grade (1CWRS 13.5)
payment on the day you delivered.

Makes a big difference whether you delivered before or after December 2.

Perhaps Larry made the best comment. The fpc and other producer
payment options are all derivatives of the price pooling system. Not real
prices reflecting your grains value on a given day. A early payout on the
final.