Pricing Durum into 11/12 cropyear

[TOM4CWB]

Charlie,

" This market signal will shutdown deliveries in a period when they are needed to fill sales at high values - "

Soooooooo...

I am to assume the CWB gave you a blank stare like you were 'TalkingEskimo'!!!???

Are we just stupid, crazy, or both???

[charliep]

didn't ask the question. Just a comment. I would store for $70/tonne provided I had the cash flow/equity to do it (realizing PRO values are forecasts/not real prices). Having said, that is a long time for any business person to wait for their money. "B" series durum signup will be interesting.

Don't know why the CWB can't offer fixed price contracts on durum right to the end of the crop year. Existing sales are know values in the pool. The CWB can match durum deliveries from farmers against sales values from customers without using a futures market (particularly after the "B" series contract is subscribed). "B" series deadline is March 31.

[charliep]

Any thoughts about what should happen differently.

durum issue to me revolves around the following.

1) Better market signals for farmers so they are able to make better decisions for their business.

2) A tighter relationship between a delivery/contracting decision and price/payment prospects. When a farmer makes a decision to commit delivery, they have a better idea of final price/payment.

3) Better ways for the CWB operations to manage their risk from logistics, price pooling and perhaps cash pricing in a world of no effective hedging systems. Could be more than one pooling period. Could be a cash plus system. could be something else tied to guaranteed delivery contracts.

[highwayman]

How will the CWB now deal with the thousands of tonnes of uncontracted durum sitting in farm storage that farmers will obviously like to deliver for bin space reasons yet will be sold in the 2011/2012 crop year. This grain being uncommitted to this crop year should then have no effect on this years final pooled price. One would assume that the board would like to avoid a similar situation like the one of last fall when they could not attract deliveries to fill the ships that were waiting in port for a number of months. Perhaps maybe a little forsight by the CWB for a change.

[charliep]

The CWB does offer some programs for durum that has been contracted and farmers want to flip until new crop.

the program.

[URL="http://www.cwb.ca/public/en/farmers/payments/newpool/"]CWB[/URL]

Kevin Hursh's comments.

<a href="http://www.hursh.ca/2011/03/high-cost-for-switching-durum-to-new-crop/">Hursh</a>

[charliep]

Good questions for the Director at their meetings over the next 3 weeks.

[URL="http://www.cwb.ca/public/en/newsroom/events/farmforum/"]farm forums[/URL]

Perhaps a pet peeve of mine but everyone will complain here but no one goes to the director meetings to ask the director/CWB operations people in attendance about important issues like this.

[highwayman]

Would have to assume that current pro for 2010/11 durum is as good as it will be and perhaps will fall as major amounts of durum are pulled out of the B series contract offerings before the March 31st deadline. This in turn will most likely cause and increase in the adjustment fee to roll contracted durum forward committed under the A series contract. Quite ironic when the board can threaten liquidated damages on undelivered contracted grain when they have no obligation to take delivery of the same grain. Makes you wonder if such a one-sided contract would hold up in a court of law.

[highwayman]

Would tend to believe that the upcoming CWB Farm Forums will be attended better then past events with the multitude of contentious issues that are presently making headlines. Heated discussions will most likely occur involving ship purchasing, wheat and durum markets, government bills allowing opting out, just to name a few. I for one have more than one such meeting marked on my calender to attend.

[charliep]

Perhaps a measure of risk is the EPO premium. I note the discount/deduction for a 100 % EPO is $24.04 (durum).

[URL="http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/epo/epo-durum-2010-20110303.html"]durum epo[/URL]

The discount/premium for 1CWRS 13.5 protein 100 % epo is $14.58.

<a href="http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/epo/epo-wheat-2010-mhrs-20110303.html">CWRS epo</a>

Difference on the 90 % epo is about $5/tonne. Higher premiums for durum would indicate higher risk of not achieving. Perhaps related to delivery patterns and support your hypothesis is what you see is what you will get on the durum PRO.

[charliep]

You guys ask a question and it gets to be like a tune that won't leave my head.

Issue. Cross signals. Old crop versus new crop spread tells farmers to store durum. The durum pool would gain addtional value from old crop deliveries and sales. Would also meet export customers needs for supplies this spring.

Solution. Offer a zero cost 100 % EPO. Benefit - more farmer deliveries and sales at higher prices therefore increasing the value of the 2010/12 pool. Still less than the 2011/12 forecast but getting paid on delivery (or 2 weeks after) will take some of the sting out. If additional sales add more value to the pool, everyone benefits. Risk is durum prices decline and the contingency fund eats the losses of current PRO value (whats the risk).