CWRS

[TOM4CWB]

Canadian millers have been told they will not be getting any high quality
wheat this year according to industry sources. Japan will get the 1CWRS and ptotect customer loyalty.Harvesting and quality problems may have been the driving force to the MGE wheat futures today. It closed 8 1/2 to 20 cents USD higher per bushel.

The question that needs to be asked is how much of our wheat was presold before the June/July run up and what percentage of the crop was sold. 25% of 16 MMT or 25% of 10 MMT.

If there were large amounts of wheat sold before the drought reared its ugly head, it will take some time before the PRO's will reflect the true price of wheat.

Just my humble opinion

[TOM4CWB]

LarryWeber,

I agree that the amount presold will have a big influence on this years PRO.

THe question must be asked, who exactly authorised the sale of wheat and barley the CWB presold?

Except for a very small PPO amount, Farmers themselves did not, shouldn't the government of Canada be responsible for the loss the CWB bad marketing decisions created?

[TOM4CWB]

Charlie:

To do a realistic job of marketing CWB grains, we MUST know how much the CWB presold of the 2002 harvest, and at what prices.

How do we find this info out?

Isn't it the CWB's obligation and responsibility to tell us what they have done... or is this going to turn out like some Ausie barley single desk fiasco, the more they cover up, the deeper the problem... till it ends up like the Barrings Bank Fiasco...

Leaving an organisation with an unlimited line of credit, and unlimited power to trade futures, without disclosure of their activities is a recipe for DISASTER!!!!

[AdamSmith]

I have a major, major problem with this decision. In a free market price does the rationing. If you're prepared to pay more, you get the grain.

How does the CWB know how much the Japanese are prepared to pay unless they are forced to bid aggresivly in order to get the grain? They don't!

Hasn't the wheat board just admitted that their not going to be maximizing farmer retuns this year? Sounds to me that they've already sold this years crop to the Japanese and Canadian wheat farmers will watch from the sidelines as the market posts new gains.

How is this helping value added in Canada? The CWB has, by decree, have told the nations millers that they will be getting the crap this year.

The only positive thing in this is that the millers are getting their just deserts from the CWB. If they want to keep company with a skunk they shouldn't be surprised when they get sprayed now and then.

I can't find enough words to describe how bad of a policy this is.

Here's some slogans for a CWB add campaign,

The Canadian Consumer Will Always Be Number Two With Us At The Canadian Wheat Board.

or, Canadian Consumers, Your Just Not As Important To Us At The Canadian Wheat Board.

or The Canadian Consumer, Taken For Granted By The Canadian Wheat Board For Over Sixty Years.

or At the Canadian Wheat Board, We Just Don't Care About The Canadian Consumer.

[charliep]

An article from reuters today.

WINNIPEG, Manitoba, Sept 5 (Reuters) - The Canadian Wheat Board, the world's largest wheat and barley marketer, said on Thursday it would no longer quote prices for wheat and malting barley due to drought and harvest uncertainty.
"We've had a very severe drought. We are facing an uncertain harvest. We have essentially withdrawn from the market while we evaluate our harvest and thus our supply," said Louise Waldman, a spokeswoman for the Winnipeg-based board.
The board had already predicted last month, the beginning the Canadian crop year, that its export program would be slashed by close to 40 percent as a result of poor growing conditions on the Canadian Prairies.
CWB President Greg Arason said that the 2002/03 export program could range from 10 million to 12 million tonnes, a sharp drop over the 16.2 million tonnes sold last season.
Early frosts and recent rains have since prompted further concerns about declining quality.
The board, which has a government-granted monopoly on the sale of all western Canadian wheat, durum and barley for export as well as to domestic milling and malting customers, sells grain to about 70 countries.
The top buyers of high-quality wheat from the board last year were Japan, the United States, Mexico and Iran. Maltsters from Canada and the United States were the largest buyers of CWB barley.
The highly secretive board said on Thursday that, over the last two weeks, it had been gradually pulling out as an active seller on the world market.
"We weren't really talking about it until someone forced us to," Waldman told Reuters.
"We have been cautious sellers all spring. This is not a new development. We've gone from being cautious sellers to essentially withdrawing from the market. This has been a gradual process."
While board officials said they would continue to deal with premium, long-standing customers and fulfill existing contracts, new sales to all clients are to be evaluated on a case-by-case basis.
"We have to assess every request individually and make a decision on the basis of the request and the circumstances at the time," said Waldman.
Concerns about the size and grade of this year's western Canada wheat and barley crops have already sparked widespread concern among grain companies that face high fixed costs and dwindling handling revenue.
Analysts say that other sectors of the industry are already feeling the pinch.
"The millers are under pressure from the Canadian Wheat Board to take whatever the wheat board decides to give them," a senior analyst at a major grain company told Reuters.
"There's a huge percentage of the wheat crop still out in the fields getting rain on it every day. The quality has got to be rapidly deteriorating. We've pretty well been told we ain't going to get it." the analyst said.
((Winnipeg Reuters Bureau, 204 947-3548, fax 204 947-5167 email:toronto.newsroom@reuters.com or chicago.commods.newsroom@reuters.com))

Adamsmith - Just a note the Japanese Food Agency does not tender that far ahead (two to three months at most). Anything that is forward priced would be done with North America processors. All these buyers use futures to manage risk.

[charliep]

If the CWB has removed itself from marketing my wheat and barley to maxiumise my return. They had better free up the export and domestic market to the highest bitter for my product as they are no longer a realiable marketer for my business.

[TOM4CWB]

Kernel;

This is just fresh from the brand new CWB site, under "Hot Topics"

"Price pooling and single-desk selling

Price pooling and single-desk selling are the two of the three pillars which enable the CWB to attain the highest possible returns for western Canadian grain farmers from marketing their grains.

The government guarantee is the third pillar.

Single-desk selling
As the single seller of Prairie grains, because we have knowledge of, and control over, the total supply, we can plan, coordinate and target our marketing activities. We have the ability to direct grain into the markets that return the most total revenue to farmers. We also possesses the unique advantage of being able to sell into different markets at different prices on the same day without eroding the price structure in the premium-priced markets.

Price-pooling
Pooling is the mechanism by which all farmers equitably share in the added value created by the single-desk structure. Pooling adds value to farmers in three ways. First, it eliminates the risk of volatility in wheat and barley prices farmers would otherwise face as individual sellers of these commodities, and transfers that risk to the CWB and its pool accounts. Second, in combination with CWB delivery quotas and delivery contracts, it ensures equitable and efficient use of the constrained grain handling and transportation system we have in Western Canada. And third, it lowers the “basis” farmers would otherwise have to pay on wheat and barley currently marketed through the CWB."

Charlie;

I am having real difficulty swallowing what the CWB is saying in these statements...

How exactly does the CWB eliminate price volitility from the market?

Does this mean the CWB has long term contracts that are priced?

How come in the past every time the market falls, the CWB is leading the price dive with the PRO, but they are the last ones to increase the PRO on the way up?

Does this mean that the CWB has priced this years CWRS crop already, and that if the markets crash in a couple of months, these prices reflected in the PRO calculations are what we will actually recieve???

If the converse occurs, and the price doubles in the next 2 months, what will happen with the PRO?

HOW Can the CWB have it both ways?

Thalpenny, Chaffmeister, someone... can you help me out please;

I guess I am just a stupid farmer, but I don't understand what my marketer has just done!!!

How much of the 2002/03 crop year is priced on CWRS?

Now how does this all fit with the CWB claims of benefits created by the single desk, and price pooling?

[parsley]

Tom4CWB,

The CWB is sporting this new expensive website, with the entire website available in French. I would suggest that you read the French version to get your answers. Remember when the farmers were going across the border? The CWB Act read one way in French but another translation for English. Maybe you will find a translation on their web page that will reassure that the Eastern Millers will get their cheap supply of grain for the coming year, with inflation kept at bay. On your back.

The bottom line is hunker in Tom4CWB, and buy a few hamburger packages from cowman for the Mrs. for Christmas, because there won't be cash for pearls . Neither you nor kernel will probably get to enjoy the rising wheat market.

Parsley

[chaffmeister]

It seems to me that one of two things could be happening here.

1. The CWB has withdrawn as a seller because of uncertainty in the crop. This could be either crop size, crop quality or both. Without trying to read between the lines, the CWB's withdrawal from the market tells me that it does not want to get caught selling something it can't provide. This would be very much like a farmer forward selling only a portion of his crop until he knows what he's got. If this is the case, I would anticipate the CWB to regain selling once the harvest is near completion and they have a better handle on what it has to sell. In this scenario, the CWB will capture some of the high prices in the market.

2. The second possibility is that the CWB has withdrawn as a seller because it has pre-sold a lot of wheat and now, because of further deterioration to the crop, they have effectively oversold the market. (Or at least they fear that they may have.)

Either way, it seems prudent to me for the CWB to hold off. In my view, this is not stopping them from capturing high prices that will remaim in the market (unless it has nothing left to sell). Let's think about it for a minute - if the global situation is as bad as we all assume it to be, pulling away from the market for a few weeks won't hurt. In fact, the CWB's announcement late yesterday may have a very positive effect on the wheat markets today.

From a merchandiser's perspective, what the CWB is doing in this regard is prudent.

I am left wondering about the potential of the CWB over-selling, though. The only way that holding off from selling now will capture higher prices later is if there is indeed something to sell.

All the indications are there - a PRO that is sluggishly trailing US futures, and now the CWB pulling out altogether. I guess if the CWB had not sold anything, the PRO wouldn't be as sluggish. But it may still withdraw from the market.

With just what the public knows about the wheat markets around the world, the outlook (the "O" in PRO) is much better than the PRO would suggest. The only thing possibly holding it back is averaging with lower sales on the books already. And if the volume of grain yet to be sold is now lower, the potential to sell more at higher prices(to increase the PRO) is now compromised and the lower sales will have a greater impact on the pool.

It all comes down to "timing of sales" - a critical component of any assessment of CWB marketing performance.

[TOM4CWB]

Chaffmeister;

Well put.

But I still do not understand how the CWB will receive a pooled price for the next 2002/03 crop year, when they shouldn't have started even selling it yet, and yet they have stopped selling it.

What I mean by this is that the 2001/02 Crop hasn't even been all sold yet (usually it finishes moving through the system by about Oct. 15) and the CWB expects to get an average of the coming 2002 harvested crop year's prices?

If the CWB is going to presell my crop, then they have an obligation to ask my permission. The presale of my grain is cash selling, not pooling my grain sales over the whole crop year, especially when the crop year hasn’t even started yet.

How does what they are doing reconcile with the above single desk/price pooling CWB policies?

Thalpenny;

Does the CWB expect me to believe they know what the next years prices’ will be, let alone next week’s prices?

I see the CWB delivery policy this fall as another fiasco...

If the landlords on my farm did what many do with permit books, I could walk into the elevator with a dozen permit books and deliver 45t/permit book, the whole crop.

But with the dropping of the acreage harvest delivery, and trying to obey the CWB Act with respect to permit books, I am stuck with 25% of the A series, which commits me to deliver my whole crop, and now I can't even look at delivering into next years pool if I want to...

And my landlords need money to pay taxes and expenses, so I feel a moral obligation to let them deliver instead of my farm.

So I am stuck with the worst of all worlds, while the quarter section permit book holder/farmer gets to 10bu/ac right off the combine without any further commitment to the CWB for the rest of his crop, while I get the privilege of delivering practically nothing.

What a deal… and this is equitable?

It appears the CWB is buying votes from small land holders by allowing them to deliver all their wheat right off the combine (the 45t/permit book that is automatic no matter what size the contract is) thereby securing cash flow and favor in the election for the "fair" regulation of the "limited" space available in the local elevator...

It is interesting that our local elevator would be nearly empty if it didn't have a whole bunch of US corn and corn products in it... with the wheat harvest over half done...

I notice the volatility issue has not been answered... but it needs to be addressed... how does the CWB eliminate this risk for me?

Why doesn't the CWB admit that CWB pooling/ prepricing system of marketing is just transferring this volatility risk right back to farmers?

How has the CWB helped my farm and extracted a premium for me?

[charliep]

Just to highlight the timing component you mention chaffmeister, the current US wheat futures are flat over the winter turning into an inverse next summer in anticipation of a bigger 2003/04 crop. The normal signal from this type of market would be to sell earlier rather than later.

CWB total payments are an average price for the year. They are also at the mercy of farmer delivery patterns as well as trying to provide customer needs over a 12 month period until new crop appears. I would be very interested in the approach the CWB sales plan uses this year in addressing all these issues.

[charliep]

Just as a note (will deal with more fully after harvest), the early pricing option provides a good tool to provide early delivery to the CWB/have effectively ownership of put option 10 % below the CWB PRO.

As an example, the 1CWRS 13.5 PRO (Aug. 22) was $259/t (port), the early pricing initial is $230/t after deducting $3/t discount. Implication - you can effectively own a put on CWB total payments $26/t out of the money for $3.25/t. This is a good investment from my standpoint both as a risk manager and a mechanism for improving cash flow.

[charliep]

A day for thinking about CWB issues as I work on other things. What would happen if the CWB is a net long now? Maybe the CWB was hedged going into the July PRO for a higher percentage of the crop than they would like (keeping in mind that no farmer had made delivery commitment). Late July/early August, they lifted their hedges and replaced forward contracts with long futures positions. Using their PRO forecasts and relationship with the converted MGE futures price, I still have trouble reconciling moving from $25 over on May basis (CWRS) to $2 over in July and back to $24 over in August. Something strange happened in Mudville.

[TOM4CWB]

Charlie,

I would really hope the CWB took the input farmers gave them in late June when they put out the very low PRO.

THey certainly were raked over the coals, when the June PRO was released... and they had no excuse not to have bought back any short positions they had at the end of June for the 2002 harvest.

I really believe that August was a major second blow to production, (early frost)and rain that is knocking down quality especially the grain that could have gone for export.

The point that must be emphasised is that the CWB has no business prepricing the any poolled grain, before it actually has pool grain delivered or contracted to price.

How has the CWB done on these points, and the proof is now obvious that the CWB knows nothing more about weather markets than the farmers they serve, infact they are not as close to the land as we are, therefore don't have the preminitions that many farmers have when the weather is really turning ugly.

Isn't it only fair that farmers should make the decision about CWB timing of sales, as it is our farms on the cutting block?

[AdamSmith]

Word on the street is that on Wed Sept. 4 the CWB was heavily buying back short positions on the Minniapolis exchange.
Sources in Minniapolis say that the CWB trader showed his hand early and the entire floor quickly saw the CWB was vulnerable and so they slaughtered the poor guy. (one of the resons for innie gains) Problem is he was losing farmers money here. My info suggests that the CWB took it on the chin for between a dollar and a dollar and a half US per bushel which would suggest that these short positions were put on in late June or early July. All this fits your theroy Tom. When confermation comes I will let you all know.