BPC 8.94 with more flexibility than SPG Minot

[timm]

CWB gives advantage of pricing without being
tied to any grain company until grade etc. Is
negotiated.SPG binds the farmer on hedge to
arrive contracts and with a less competitive price!

[charliep]

Not sure on your comment.

When you are not locked into a company, you have more flexibility
on negotiating grading. I guess if you have a differed contract,
you are locked into the spreads in contract and limited ability to
deliver elsewhere. If you feel you have been dealt with unfairly,
you are unlikely to sign a contract again with that company. If
you are unhappy with CWB pricing over a long period (eg. winter
wheat growers), what alternatives to you have to take your
business elsewhere in Canada? I will expect the standard answer
you can use the open market (i.e. domestic feed/ethanol).

A US farmer has more flexibility in pricing in an open market as all
things are flexible/determined by the market place. Protein,
falling number, etc are all attributes that can be valued based on a
market signals from customers.

In Canada, the single desk buyer sets payment spreads based on
their calculated average spread between classes, grades and
proteins over the whole pooling year. Grading itself is based on
CGC grade specifications and CWB payment structure.

I have asked the question several times and never got an answer
but you can perhaps explain why the CWB continues to use initial
payment spreads in the fixed price contracts rather than market
based ones. From your statement, you believe this is a good
thing. Just wondering why.

[bucket]

timm

Why do you keep comparing to just one elevator in North Dakota?

If you haven't priced you have plenty of options in the states to capture in a rising market.

This patting yourself on the back for getting in on the lottery flexpro and comparing to one point in the states is getting old and relatively arrogant on your part. If you read Weber's newsletter occasionally, you would find your grain worth considerably more than the cwb's flexpro. But maybe for being such a expert marketer that you are, you don't realize that.

Maybe, you work at the cwb?

[BreadWinner]

Timm, What about the rest of your wheat since you only have enough flex for %25 of your production. Pool, fPC, EPO or what else is there. Come on smart guy lets here some smart answers and lets have some prices with those. Oh and remember the pro is just an estimate, you always end up with less.

[TOM4CWB]

timm,

You should try marketing winter wheat. WHAT a BAD Joke.

How about when the CWB will take the millions of tonnes of feed wheat they bought... that is sitting in our bins.

WHo even has a clue what the CWB will pay next year for wheat... the basis is a complete unknown.

And we must have all our wheat sold by Jan31/11... or wait till CWB quota opens for the harvest of 2011.

Your rose coloured glasses... seem to miss the most important issues for those who need to have marketing flexibility and reduce risk.

[charliep]

Perhaps a point being missed in these comments is the CWB producer payment options are derivatives of the price pooling system and have absolutely nothing to do with daily prices except the reference to daily futures market changes. The basis and the adjustment factor are derivatives of the pooling system as determined by the single desk buyer for western Canadian wheat and barley for export/human consumption (with no level of competition or visible process for establishing). Larry Weber has made this point several times.

A frustration that perhaps timm can help me with is the relationship between the state of the contingency fund and CWB PPO basis levels. It would seem PPO basis levels are weak when the contingency fund is low on cash/needs to be topped up but strong when the contingency fund is fully funded/no need for more money. The issue then becomes transfer of pooling funds between crop years - something that is not allowed in the CWB act but happens all the time through things like valuation of inventory at the end of crop years (another topic).

[timm]

if a farmer does a hedge to arrive contract with
SPGrain for say 50 % of anticipated production how do
u negotiate grade trucking premium dockage moisture
etc.with the various buyers after its in the bin? This
can be a huge benifit that may not be readily apparent
to someone with no real meat in the game.Cwb PPOs
allow this without messing with margin calls!

[charliep]

Can't comment on PPO programs but in open market crops, risk of margin calls/cost of carrying a hedge account is built into basis. How the CWB handles risk of 10 months ahead of a crop year begginning is something I have to admit to not understanding other than it is a cost to someone even in the case of the CWB. To believe the CWB doesn't work this into their risk management costing is living in la la land. The CWB doesn't bear of the risk/cost of managing it for the PPO programs. This cost is born by farmers who use the programs.

To your point farmers can negotiate trucking allowances and other factors such as grade/blending privileges, the answer is yes. The base price is set by the single desk buyer (the CWB) with no competition or visiblity of process.

[cityguy]

Lot's of interesting comments in here that I'm not sure I'm onside with -
1) don't think FlexPro was a lottery as am not aware that it ever filled up. The old DPC filled up and GrainFlo the one year filled up, but don't think enough people committed to FlexPro by the end of July to fill the "quota". 2) In most cases protein/quality discounts are basis time of delivery, not time of contract.

Finally, it's a given that US elevator bids will mostly beat CWB elevator bids. Some years the US is the major exporter of "last" resort, like last couple of years when the world price was largely determined by FSU origins, or like this year when the US is the major exporter of "first" resort, when the world runs to the US for coverage given crop problems everywhere else. Presumably the CWB, being the price taker that they are, will see their values more closely reflect US values in year's like we're in this year (and probably next) as opposed to year's like 08 and 09 when they more reflected non-US export values.

That all being said, AV'rs do a great job of debating, albeit mostly one sided for good reasons, "commodity marketing" policy with regards to wheat, but do a lousy job of debating "commodity marketing" practicality with regards to CWB wheat. Give poor timm is moment in the sun. Fine. The bigger question is that given the PPO structure what should Canadian wheat marketer's be doing. Should they be pricing out their FlexPro's today. Should they be pricing out new crop futures and "betting" on the basis being 10 or -10 when it gets announced at the end of February.

The fact that US prices are better is given most of the time. But other than continually point out the shortcomings of the current CWB PPO's/pool, which are legit observations, and propose alternatives - and there's no harm in that - isn't it worthwhile to discuss what commodity marketing strategies people should be doing with the "tools" in hand??

Or are most of the opinion that the PPO's are just too divorced from US "reality" that you just put the grain in the pool and be done with it?

[charliep]

On your comments on grade/spread risk, what tools are available to farmers to manage their grade spread risk in changes between adjustment payments. Ssignificant changes in the December adjustment payment and likely more to come in the next adjustment payment. This is more significant than playing around with trucking allowance/ability to upgrade via blending. Heavans, Alberta farmers would just like to see some space at the local elevator so they can move some grain. My sense (likely will be told I am wrong) is elevators are plugged to rafters and there are still significant amounts of tough/damp grain looking for a home.

[cityguy]

Grade/spread risk is very difficult to manage in any wheat market. As I said, in the US grade/protein discounts/premiums will be determined at time of delivery if you deliver something different then was contracted. Maybe the standard US bid is for #2 NS/DNS 14 protein grading factor discounts/premiums along with protein premiums/discounts at time of delivery to apply. So pretty tough to manage those risks.

On the CWB side, it's so convoluted as it is, but maybe they do have to have a daily set of "floating" discounts/premiums that apply to non-pooled wheat at time of delivery.

[charliep]

cityguy

Would be nice to talk more about market strategies but never gets traction here. Much easier to talk politics than markets.

On the mechanics of CWB PPO risk management and programs being offered to farmers, almost all the successful newly elected directors identified getting payments/money to farmers earlier as their priority (I take them at their word). I think there is good reason for farmers to be aware of the mechnanics of CWB risk management processes and impact on a farmers ultimate value of their product. There are elements of effectiveness and cost. You can then go to the PPO contingency fund which needs clarity and ultimate accountibility from the organization (both operations and BofD) - a slush fund if you like. Never gets comments here but this does not bode well for the future of no government guarantees and a massive fund that covers the risk of the entire pooling system.

[charliep]

cityguy

Last sentence. Yes. Daily spreads based on the market.

[cityguy]

Think it's fair to say that the biggest hit to the contingency fund was when the CWB had the DPC up and running. Trying to manage a "US basket" price in years when the US wasn't necessarily the world wheat price benchmark was going to be a loser no matter what. Unless the CWB simply matched up DPC purchases with US sales and took the "above" average US sales out of the pool, thus lowering the pool value, there was no way that they or anyone else would have been able to turn the DPC into a money maker for the CWB.

Last year, and to a greater degree this current year, you have to figure that the contingency fund is going to be growing on account of the CWB "trading" activities, most noteably the barley and feed wheat trades. Not sure of the mechanics of money moveing from feed barley/wheat pools but it's pretty obvious that the CWB has been able to originate a lot of those two commodities are good $20 under where they are selling.

Also - are the various EPO values "self insured" or is the CWB actually buying wheat and dollar options and re-selling to growers at virtualy no cost? Does all the EPO money go into the contingency fund, with one reason being it's a contingency fund is that in bearish years there may be money coming out of the fund?

[charliep]

Would go back to the 07/08 annual report and highlight the fpc took a hickey like the dpc. From comments on the inside, a learning year of mistakes. Other issues like cash trading and the epo are dealt with fairly well in annual reports. As an example, the epo risk management costs are segregated. The epo's have always been a net contributor to the contingency fund by the way.

Whether some of this transfer is self risk management and shows up in internal transfer to the pooling accounts is something I don't know/don't think anyone outside the CWB would. I assume the auditor would look at this and if a CA firm didn't have the expertise, they would check with someone who did. From an old life, using the word chartered accountant and risk management understanding in the same is a bit of an oxymoron.