Details 2011/12 Flexpro Announced Today

[charliep]

Here is the press release.

[URL="http://www.cwb.ca/public/en/newsroom/releases/2011/news_release.jsp?news=071211-2.jsp"]Flexpro 2011 12[/URL]

Will have to get a full clarification of the new flexpro and how different than a fixed price contract. The main one I can see is an fpc needs to be allocated against a specific futures month whereas your pricing window on a flexpro is open. The ability to lock in a basis is also different - no basis contract alternative on an flexpro. The biggest change from the old flexpro is the extended signup period and the inclusion of an unjustment factor.

My other pet peeve is that spreads continue to be based off initial payments. This is stupidity that should have been fixed a long time ago but most farmers don't understand the implications and likely don't care.

[charliep]

freudian slip last sentence first paragraph. Should be adjustment factor - not unjustment.

How many understand the adjustment factor and its relation with the CWB pricing pace model?

[charliep]

Off my own topic but will note that CWB producer payment options (fpc, epo, flexpro) were used in over a third of this years wheat ex durum delivered. Watch the end of year conference for the exact number/percent.

[macdon02]

My plan is use non board grains again to
cashflow things and sit on board till 12.
Whether this happens or not will depend on
harvest. Me thinks with flooded areas in nd and
sask, man. Could be a shortage by next july.

[charliep]

One final thought. How will the CWB handle producer payment options and the contingency fund in the coming crop year with the alternative scenarios that may occur? Aggressive/higher risk/negative impact contingency? Conservative/low risk/build contingency? The programs are based on manufactured prices (daily fpc/flexpro price is based on US and world markets assumptions) and no competition/relationship with actual traded values.

[charliep]

Should clarify the last statement. I understood why the CWB ran the flexpro as a production contract with a summer signup period from a risk corporate risk managent strategy. This is departure from that policy and strategy with a different risk profile. The inclusion of the adjustment factor changes this somewhat but why didn't they do this from the beginning. Will the CWB have more or less incentive to manage risk of PPO programs? Who covers a deficit or gets the remains of a positive contingency fund under different scenarios?

[Hopperbin]

OMG would it not be better to just sell everything now and go to vegas for a month? Us farmers do not need this shit. Sorry for the simple analogy. This marketting crap from the CWB is shit, simple smelly shit.

[saskcanfarmer]

What the hell is flexpro exactly? I have been trying to figure it out for two seasons now. I read and call and still can't figure out what the point of it is. Maybe ignorance on my part or stupidity but what the hell is it!? I have fixed in a lot of my wheat the last two seasons but I know people made out well on this program. In laymen terms please.

[charliep]

Can't sleep so will have a crack at your question. Will start with references. The CWB web link is:

[URL="http://www.cwb.ca/public/en/farmers/producer/1011bpc/pdf/10-11/infosheet/1011bpc_pe.pdf"]PPO Explanation[/URL]

I use the CWB farm business representatives and the CWB contract specialist a lot to help me understand CWB programs. The contract specialist in Alberta is Wendy Kaplan.

<a href="http://www.cwb.ca/public/en/contact/psr/">CWB contract specialists</a>

What you need to know about the flexpro.

Flexpro is a way for a farmer to lock in a price versus staying in the pooling system. Collect your initial payment on delivery and are paid out your total payment 10 working days after.

What makes flexpro different than other CWB contracts is a farmer only establishes a tonnage commitment when you sign a flexpro contract.

You watch the daily price (definition below) and decide when to lock in a value.

This is different than the other CWB contracts in that you have to lock in some component of price at signup in their cases.

Lock in a price/all components (fpc), basis only (bpc basis) or futures only (bpc futures).

All CWB producer payment options are based on a world price (not US price). The world price is a blend of all the markets the CWB sells into calculated on a daily basis. Important to understand.

To understand any of the CWB programs, you have to understand two concepts. Pricing pace model. Adjustment factor. The relationship between the two.

What is different this year in the above is the CWB has opened the window longer (March 15) as to when you can lock in tonnage on flexpro without establishing price, basis or futures.

This opens up more flexibility around your pricing period and may save you rolling contracts. Again tonnage only committed. A basis contract signed against March and want to roll to July as an example.

If you sign an flexpro after August 1, the adjustment factor applies on the day of signup to account for the impact of existing sales in the pooling system. Still are committing tonnage only still.

Likely as clear as mud but would take a lot more explanation to go into more detail and too early in the morning.

Key things for farmers to understand in the CWB contracts.

Daily contract prices and how calculated. They are not actual sales prices but rather a composite of world prices for that day. Lots of confusion here.

Pricing pace.

Adjustment factor.

How spreads are established (initial payments at delivery) if didn't grow and deliver the base grade.

If you want a better, arrange a meeting with one of the CWB business representatives and they can work you through the process. You can talk to your marketing advisor or a provincial specialist including me.

Charlie Pearson - ARD. Will make you look on our web site for phone number/email.

[TOM4CWB]

Charlie,

Can't sleep either:

'What makes flexpro different than other CWB contracts is a farmer only establishes a tonnage commitment when you sign a flexpro contract."

Before I even know that I have the milling quality the CWB PPO contract demands... they want a 'volume' locked in? My Canola contracts allow sample to be delivered.

I need to be able to choose to sell OUTSIDE the pool... and not specify volume which should be a choice.

I say if I have equivelent quality to US wheat... THE US PRICE IS THE WORLD PRICE. THE US MARKET MAKES THE WORLD MARKET. AUSTRAILIA BASES WHEAT PRICES ON US PRICES.

I DO NOT ACCEPT CWB 'PRICE DISCOUNT' WORLD PRICES AS FAIR MARKET VALUE.

ALL THE CWB HAS DONE... IS PROVE THEY KNOW HOW TO DISCOUNT VALUE AND SELL MY FAMILIES GRAIN.

THIS IS STUPID.

TELLING BUYERS UP FRONT... WE DISCOUNT PRICE OUR GRAIN... SALES DEPT THAT BUYS FROM GROWERS WHO HAVE NO CHOICE BUT TO SELL AT A DISCOUNT

THE 'SINGLE BUYING DESK' OF THE CWB.

WOW.

WE GOT NO WHERE.

FROM A POOL THAT PRICE DISCOUNTS...

TO A FLEXPRO THAT INSTANTLY DEPRECIATES MY GRAIN I HAVE NOT EVEN GROWN YET!!!

ARE WE EVER SMART!

[TOM4CWB]

Charlie,

'Winnipeg - The sign-up window for the CWB's FlexPro pricing option will be extended by six months, the CWB announced today, providing more choice and flexibility for farmers who use this popular program."

How stupid do they think growers are?

The 'single desk' is over.

It is already started,,, COMPETITION.

The CWB is dreaming if they think I am going to sign up to a 'price discount' selling system.

CASH PRICE. FAIR. NOW.

I DO NOT SEE A FAIR COMPETITIVE CWB PRICE.

OBERG JUST DOES NOT GET IT!!!

WHERE IS THE CWB 'PREMIUM'???

THE PREMIUM... IS A DISCOUNT???

NO WONDER THE US MARKETERS ARE SO MAD AT THE CWB!!!

WHAT A JOKE WE ARE.

[charliep]

will leave most for discussion but a couple of comments.

First is the flexpro has got around the issue of signing a production
contract without knowing grade by extending the signup period until
after harvest. You can now sign a flexpro after harvest. The
downside is flexpro now includes an adjustment factor - this could
be negative in a rising market but can be positive in falling market.

On the world price frong, farmers need to understand the concept of
price differentiation better. Yes it does mean selling into premium
markets. It also can mean selling into deeply discounted markets in
competition with countries like Russia and Ukraine at deep freight
pain when the CWB wants to move volumes. No discipline of the
market (i.e. having to obtain farmer supplies based on a price signal).

I was going to put the daily price explanation in my other post but
will do now. The price is blend of world prices on a daily basis. THE
DAILY PPO PRICES ARE NOT US VALUES. Don't know the
spread/percentage but here is what MIGHT happen in the PPO
calculation. US prices make up 40 % of the daily posted prices (North
American milling market), Australian prices make up 30 % of the price
(competition into Asian markets), European wheat prices 20 % (middle
east/north africa). Ukraine/Russia - 10 %.

CWB uses the above combined with their sales program to determine
the daily price.

Don't shoot the messenger. Just the process. Only an example as
well. Only the CWB knows the formula and prices being used. No way
of verifying or allowing competition.

[checking]

Why can't you guys sleep?

Many of us sleep well, but wake up, read these specially designed marketing scheme option explanations, and get instant headaches.

Someone, please turn the clock forward on the CWB.

[charliep]

Good question. No answer.

If you are familiar with current CWB programs and use them, you are well placed to move into the new world of an open market.

Solid CWB pricing programs and innovation that offer value/risk management for farmers and grain companies will give them the chance of survival in this new world.

The alternatives are actually quite easy.

Do you like today's price? Sign a fixed price contract.

Do you like the basis but not the futures price? Basis price contract basis only.

Do you like the futures price but not the basis? Basis price contract futures only.

Do like none of the above (futures, basis, price) but are willing to commit production? Flexpro.

Do you recognize a good price that should be locked in/need the cash for bills but have a strong feeling prices/payments could go higher? Early payment option.

[charliep]

I should note the open market will have more of a connection between delivery and price. With today's CWB , there is no connection between delivery and price except perhaps guaranteed delivery contracts. You sign an "A", "B" or "C" series contract, wait for acceptance levels, wait for contract calls and finally space at an elevator within reasonable trucking distance. Normally wouldn't sign a production contract without a price commitment but doesn't matter in the case of the CWB.

On the plus side, you can apply fpc and flexpro contracts to existing deliveries you have in the pooling system. Example, deliver in the fall/take the initial payment, wait for a rally during the winter/sign an fpc or flexpro and apply use to price out this wheat.

Got the number and PPO products made up 48 % of this past year delivery percentage. Record start in terms of contract volume to the 2011/12 crop year.