Mid Month PRO

[charliep]

Just a note to highlight the CWB released a mid month PRO today.

http://www.cwb.ca/payments/pro/2002-03/080902.shtml

Assuming a risk factor of $3/t, today's 1CWRS 13.5 PRO of $142 and the converted MGE futures price of $229/t, today's CWB basis would have been about $10/t.

[jgstuart]

Does anyone know the process that AFSC uses in determing their price projections as far as the "variable price option" is concerned. Do the CWB PRO's have any part to play. As I'm sure you already know, wheat prices were not raised because apparently they did climb more than the 10% required. However, these new PRO's would put wheat prices well above that threshold. Does this mean that anyone who chose that option missed out on the higher prices by 9 days?

[TOM4CWB]

Charlie,

Now it has become even clearer, the Producer Pricing Options have damaged the credibility of the CWB's PRO forcasts...

Will the CWB finally admit that the Producer Pricing Options never should have been priced off the PRO???

Interesting though, the insight we were given into CWB marketing mistakes... through the connection...

It would be much easier to forgive the CWB if they actually admitted they made a mistake, and corrected the process by making CWB pricing activity transparent...

In Late May early June it was obvious the CWB had paniced into firesale prices... and that domestic millers were really pleasantly surprised with the results...

The Ontario experience with the millers asking for the return of the monopoly, accountability with the CWB election, has all really put the CWB in a corner... now damage control...

Isn't it amazing what can be done with $185 billion line of Credit!!!

[charliep]

jgstuart.

The short answer is yes - the group that establish the variable crop insurance values did use the July PRO.

In terms of impact, the mid August PRO would have generated an increase in CPS wheat values used in the variable pricing option but not necessaritly normal/high protein CWRS wheat (analysts would have had to add on an extra $3 to $5 to get above the 10 % increase thresthold). Even current values would not have generated an increase in durum (unless we were willing to add on $10 to $15/t onto the Aug. PRO).

I don't have all the information at home but the values used in the winter crop insurance price forecasts/prices were pretty much spot on with the July PRO.

Tom4cwb.

I leave discussion on PPO to others except to comment there is director election this fall and a winter to work with the CWB to improve their contracts. My focus with people will now be on the early pricing options.

[charliep]

I did some more checking and durum variable pricing would have been in the same category as spring wheat - would have had to be $1 to $5 above PRO to generate an increase in variable pricing option.

[TOM4CWB]

Charlie,

I just wonder,

Is it coincidence, just maybe, that the last PRO kicked out CPS from triggering an upward crop insurance coverage movement, now, so as to not cause resentment, CWRS/Durum PRO's are just below the trigger levels... I wonder...

[charliep]

I forget the exact protein on both the high protein (at the office) and normal CWRS but here is the mechanics for the two alternatives. I am assuming a $43/t CWB deductions - the level used in the PRO examples.

2CWRS 12 % protein
Winter crop insurance - $168/t ($4.56/bu)
July PRO - $170/t (Didn't generate an increase in variable price).
August PRO - $185/t (Would have been $2/t short - would have to show judgement)

2 CPSR - 1CPSR minus $1/t
Winter crop insurance - $148/t (about $4/bu)
July PRO - $155/t (no increase)
August PRO - $172/t (would have generated an increase).

Hope this helps explain. Keeping in mind the process involves forecasts on a given day (the numbers on some of the other prices might have changed if done today), the prices should have logic behind them.

[charliep]

Similar numbers for high protein CWRS option.

2CWRS 13 % protein ($3/t under the 2CWRS PRO based on initial payment spreads - this may be narrow as protein premiums are lower this year).
Winter crop insurance - $176/t ($4.56/bu)
July PRO - $176/t (Didn't generate an increase in variable price).
August PRO - $190/t (Would have been $4/t short - would have to use judgement).

Somewhat relevent to this thread but an issue - in a world of tight wheat supplies, average protein for both the US hard red winter and likely the North American spring wheat crops will be high. Trying to sell high protein wheat to customers when their needs are for mid protein creates a new set of challenges.

[charliep]

2CWAD ($5/t under 2CWAD 11.5)
Winter crop insurance - $172/t ($4.56/bu)
July PRO - $171/t (Didn't generate an increase in variable price).
August PRO - $196/t (Would have generated an increase in variable price option).

[charliep]

An morning of embarassment. I should have used $157 for 2CWRS wheat (equivalent to a less than 11 % protein). Because protein spreads are narrowing, this would have generated an increase on its own if the August PRO had been used.

If you read the thread, I obviously didn't read the durum PRO carefully enough. Needless to say, a bit of a surprise. I guess the CWB is working off their 4.1 MMT production number.

[charliep]

More embarrassment - maybe I should have made that second pot of coffee.

The $3/t under in the high protein alternative refers to 2CWRS 13.5 protein PRO.

The $157 above refers to the winter crop insurance value for the low protein option.

I am leaving the house before I make more mistakes. Sorry about that.

[charliep]

More embarrassment - maybe I should have made that second pot of coffee.

The $3/t under in the high protein alternative refers to 2CWRS 13.5 protein PRO.

The $157 above refers to the winter crop insurance value for the low protein option.

I am leaving the house before I make more mistakes. Sorry about that.

[TOM4CWB]

Charlie,

I am having a problem relating to CWB numbers in the PRO.

1. Has the CWB presold more in one class/grade of wheat that will affect the spreads between the grades, protiens, and classes of non-durum wheats in this pool?

2. I look at real functional value of wheat in the market place, and the CWB/CGC grading system that rejects perfectly functional milling wheat because it has a very small amount of a specific US variety in the sample as insane from a commercial functional point of view. Obviously as you have stated the US wheat HRW and DNS harvested in the last 2 months is of very high quality and protien, blowing CWB "premium quality" Canadian premiums out of existance. Now artifical grade/class/protien spreads are the reality, and not market signals of what our wheats are really worth.

3. If we are to look at the real world, PNW prices at August 9, this is where we are at:

US Wheat associates report;

Hard Red Winter (CPS),
Ordinary; $274/t
11% Protien $274/t
12% Protien $274/t
13% Protien $275/t

Dark Northern Spring (CWRS),

DNS (300 falling # or better)14% Protien $270/t
DNS 15% Protien $275/t

Is is painfully obvious with the short crop of wheat in both the US and Canada, that the CWB PRO numbers bear little resemblence to the cash market and real value of our wheat.

The pooling accounts further distort everything and make figureing out what the CWB has done or what they are doing near impossible.

Relating this all back to crop insurance then just adds fog to an already impossible market signal situation.

It is painfully obvious that we must have cash price signals, to determine real values, and I suspect CWB sales people skew the whole process because the PRO protien and class spread figures become self fulfilling, the CWB needs to create credibility in PRO numbers and spreads, so they in turn sell the grain on those spreads.

Customers will often time humor a salesman who wants to give a good deal on a product that is worth more than what the salesman believes, or knows.

A crutial election of the new CWB CEO is coming up before the end of this month, it may tell the story on whether or not the CWB wants to join the 21st century...

[TOM4CWB]

Charlie,

Sorry, I should have mentioned how I came up with these numbers;

C$ at 1.58

US Wheat associates August 9 week price report, HRW to 13% $4.72US $4.74US/14Pro;

DNS 14pro (equivelent to 13.5 CWRS) $4.65US; DNS 15pro $4.74US

In late May early June the CWB was saying that these prices could not happen, and this is why we now have a problem.

Also did you notice the draw down in wheat stocks?

This was obviously the wrong thing to do, yet for some reason when prices are low, the CWB draws down stocks, and then builds them up when prices are high.

Only in Canada you say; It is a PITTY.

[TOM4CWB]

Just for those who are interested in good price reporting the US Wheat site is;

http://www.uswheat.org/

On the RH side the site does weekly price reports, with archives for those who want to go back and see what happened, on a weekly basis.

Charlie,

If we take a $60/t basis off the PNW cash prices, which I know is high, that leaves no question that prices are all way over 10% above CWB/Ag Canada projections done in December of 2001.