trying to understand CWB fixed price!!!

[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.

[mcfarms]

Again delivery date is the kicker, note the board has appplied for another adjustment so that'll widen lower grades more. Likely what 6 weeks from now? 8 weeks with Christmas thrown in?

Really hate trying to market wheat under this system really really do. No question we get our upsides limited and the downside left open in this scenario we are in right now.

[charliep]

Perhaps to help add confusion, your adjustment payment is the one on the day you signed your fpc/bpc. Even more confusions if it is feed wheat, you have to include the feed wheat adjustment. The feed wheat discount has been varying between $12 and $20/tonne depending on the date of delivery.

To the original, would be curious if any of the single supporters can explain all the hoops that farmers are required to go through to simply lock in a price and get paid in a reasonable amount of time.

[cityguy]

At the risk of continuing with the ice cream headache, and probably more for my benefit than everyone else's, this is the difference in delivering against an FPC on Dec 1 and Dec 2 when the initials changed - so bear with me. Dec 1 the 1-13.5 initial is 134.20 and the 2-13.5 is 126.20. On Dec 1 the FPC was 327.43. So if you delivered against that FPC on Dec 1 you'd get a cheque from the CWB against your FPC at 327.43-134.20= 193.23. At the same time you'd get from the elevator an initial for 2-13.5 of 126.20 for a total of 319.43 less deductions back to your delivery point. If however you delivered the next day when the 1-13.5 inital changed to 202.60 and the 2-13.5 initial went to 183.30, then you'd get a cheque from the CWB for 327.43-202.60=124.83 plus a 2-13.5 initial for 183.30 for a total of $308.13.

So you're out $11.30 simply becuase of the red tape involved in the timing of the initial change.

I can understand adjustment factors kicking in on the day you decide to exit the pool (meaning when you sign up a BPC or FPC). I can even understand the feed discount at time of delivery becuase that's what non-board markets typically do. But the impact of the initial price spread changes and the timing of the same can't even pretend to be market based and are completely out of everyone's control. Maybe when a producer signs up FPC's he should be locked in on the initial price spreads just so that there isn't any question as to what it is you're really doing.

After all, one of the big reasons for the 200% EPO (and why stop at 200% !!) is that presumably farmers wanted a drop dead price with no waiting around wondering what the feed discount could be at delivery. The least the CWB could do here is say that when you write up an FPC the inital price spread at time of sign up applies.

Almost everything the CWB does can and has been argued back and forth whether it's dumb or not. This is just plain dumb, all around.

[charliep]

Your calculations are right. Your $11.30/tonne is my 30 cents per
bushel. Perhaps where we different is I would argue that payment
spreads should be market based on any given day - not an arbitrary
number based on a federal government/CWB decision (you called it
red tape). The spreads would have widened a long time ago.

From a risk management standpoint, the CWB provides buyers a
market based grade and protein spread every day. Why not convert
this same spread into their producer payment options?

Will leave the adjustment payment alone. Always been a confusing
calculation for me having every thing to do with the way the CWB
manages risk and nothing to do with the effectiveness of the PPO
products to farmers. But then, I would manage risk by matching
farmer pricing against actual sales to customers.

[charliep]

I should highlight that my attitude is $11.30/tonne is relatively big money. You
will tell me the tonnage into a "B" train but there would be close to a $500
difference in the effectiveness of the fpc in one load - trump change to some
here but big money to me. Shouldn't complain because the farmer who delivered
on December 1 got a benefit they didn't necessarily deserve (would be
interesting on where the money) and the one who delivered on December 3 got
the realities of the market. As mcfarms has indicated, a person should knowing
precisely what you will get paid when sign a contract. This precision doesn't
exist in CWB contracts.