CWB Fixed Price on CPS, a mess.

[TOM4CWB]

Charlie,

On June 26, the CWB offered $181.20/t

On June 27th, the Kansas City market rallied $.15/bu, but instead of the price rising, the CWB is offering $168.85/t

$181.20/t June 26th price
minus
$168.85/t June 27th price

$12.35/t less while the market rallied $5.50/t in the meantime.

So the CWB widened the basis by $17.85/t overnight in one swoop..., and for what reason???

I thought drought was supposed to make the basis narrower, with less supply avaliable, what is happening at the CWB???

[TOM4CWB]

Charlie and Lee,

What exactly is happening over at the CWB...

The Dec 02 barley was up $5.50/tCDN today, yet the CWB lowered the 1CWBarley price by $16.45/t for a basis widening of $21.95/t.

The Dec 02 CBOT was up $7.44/tCDN today yet the CWB lowered the 1SWSWS $15.87/t, for a basis widening of $23.30/t.

CWRS wasn't quite as bad, only about half these losses.

Did something happen we didn't hear about on world grain markets?

I would love to be on the other side of these transactions, I wonder Which grain companies exactly get to buy at these barn burner prices?

Is this the best a single desk monopoly can do....?

[melvill]

TOM4CWB, I'm not having any luck finding much info on this big change. A number of soft white wheat growers, who have been watching the FPOs and doing some pricing on them, are quite upset. The soft white wheat FPO dropped by nearly $16/tonne in one day.

That kind of volatility is likely to affect the program's credibility in manyh producers' minds.

I'll find more detail and pass it along.

[charliep]

Tom H.

Just seeking some clarification of what is going on with the Producer Pricing Options and the monster changes in basis/price adjustments.

To me, it highlights the problems of using the PRO forecasts to establish basis levels. The PRO is a payment forecast based on a whole years CWB sales. The PPO should be a price opportunity for a given day that has a basis established using forecast spread relationship with other wheat classes. A challenge in the new world of basing off 3 futures markets (CWRS/CWES - MGE, CPS - KCBT and SWS - CBT) is these markets will not react the same at different points in time. As you point out over time, spread between classes are based on world wheat wheat price relationship and not just N. American.

If the market offers a better opportunity than the PRO, then it is important that the manager be allowed to pocket the advantage. This is no different than a farmer being offered $8/bu for canola when price expectations are $7 to $7.50/bu and choosing to pocket it.

An interesting comment would be for the CWB to concentrate on simply providing daily pricing alternatives using the PPO's and allocate the payment forecasting function to Ag. Canada or someone similar (the CWB would have to share information). This would carry on to the end of July/the CWB contracting period ends with who carries on forecasting function open after that.

By keeping these two functions clearly separated, you would not get the current muddying of the waters.

[charliep]

Another point of clarification. Are the current basis levels the ones that will be used until the next PRO is released on July 25? Based on the assumption that the current basis for all classses is unacceptable for a fixed price or basis contracts (the canola equivalent of a $20/t basis when normal basis is $10), the leaves 5 days in July to make a basis contract or fixed price decision if farm managers haven't done something already.

[TOM4CWB]

Charlie,

I believe this basis shift was to prevent 2001 crop from being flat priced after August 1, 2002.

The PRO was low, and with the rally, the grain would have all gone fixed price on 2002-03 instead of into this years pool. Now the grain will stay in 2001-02 and bring up this years pool a little.

This is not at all fair for those who actually need to price crop in the field, for 2002-03 but that is obviously beside the point. The real attitude of the CWB is clear, PPO contacts are a sideline and the pool is first and foremost in all CWB actions.

[parsley]

Does this mean Tom4CWB, the PPO is acting as a Sugar-Daddy to the pools?

If so, this propping up CWB pooling accounts with illegitimate earnings is simply a reflection of the corporate culture of the Board isn't it Tom4CWB?

We have all observed the Enron corporate culture. They created a whole lineup of sub-companies so that the core company could download its problems onto them. And anybody with a vested interest closed their eyes. The bankers had an opportunity to make so much money so they didn't blow the whistle. The Board of Directors were making so much salary, it was their $$$$$source of income and they didn't want the well to stop flowing. The accountants were guaranteed a sure money bag so they got creative and pushed accounting into fraud twilight. And so on.

These days, more and more professionals need to take a course in business ethics. It seems that the elite and professionals do not appear as trustworthy as most of the clients who pay them would like. Farmers need to observe orporate cultures like Enron to see what can happen.

In this day and age, farmers should keep in mind that the CWB is handling a lot of cash for farmers and farmers too, should not be influenced by a lot of fancy "Professional Talk".

Keep an eye out on how the CWB is operating :

1. Examine everything the CWB tells farmers. Is it accurate and truthful? Or misleading? Have they apologized when they are wrong?

2. Who stands to lose financially if there is "hurt" because of manipulation? Are there enough numbers of hurt to squawk loudly or will their voices be lost?

3. Do you think Board members have a true handle on what is going on?

4. Are the policies of the Board applied according to sound business principles or according to ideology?

5. Is there a culture of "defensiveness" when farmers ask questions?

6. Is the Corporation respectful towards farmers? Do they alienate, or intimidate or humiliate farmers?

7. How much in CWB cheques do farmers actually put in the bank at the end of the year compared to all the folks handling the money?

Parsley

[AdamSmith]

Bingo, parsley.

The PPO's are just another hidden source of income for the CWB Pool's.

These types of things would never be allowed to continue within a free market.

[parsley]

AdamSmith,

Or could the PPO's be the main source of income for the new contingency fund?

Parsley