CWB Sept PRO

[TOM4CWB]

Charlie;

I see the CWB increased the #1CWRS 13.5Px to $308.00 from $259.00.

EPO for CWRS is $277.20, with a charge of $13.25 for risk.

THIS is a 5% charge for CWB risk management, which is high in anyones books.

While better than nothing, certainly other risk management tools could be much more effective... if done carefully... too bad we can't just cash price and keep the $13.25/t in our pocket!

[Kasro]

I did a quick comparison of the PRO with USDA Portland quoted prices backed of to Virden.

PRO $6.99 Cdn per bushel
Initial $3.29 Cdn per bushel
World Price $8.02 Cdn per bushel

Bottom Line. As of Sept 26, 2002, with the latest and best PRO, farmers would get $1.03 per bushel higher for top grade wheat. Right now. No waiting. No bullshit. Bankable real green cash money.

$1.03 higher than the PRO. $4.37 higher than the initial. 243% higher than the initial.

[Vader]

Where do you get the "World price" for wheat?

[TOM4CWB]

Vader;

If you go to:

http://exchanges.barchart.com/intra/mgex/mgemwdp.htm

Here you will normally see the CASH MGEX, today quoted at five dollars and thiry six cents US per bushel.

If you go to the Spring Wheat MGEX CASH Prices Portland, USDA publishes and is linked to the Minneapolis Futures web site for the various cash prices each day.

At: http://www.uswheat.org/

You will find on the upper right side "Price Reports" and you can call up the weekly cash and deferred prices on the different classes of wheat.

Is this the info you were wondering about?

[Vader]

Tom

These sources all appear to be United States origin. How do you define "World Price" and how do these United States prices relate to sales made to African States, Middle Eastern Countries and Pacific Rim Coutries?

When commodity prices are high on the American exchanges do all of the countries around the world jump in and source their needs for the year?

If Canada tried to "move" its entire production into any given market at a time when prices were high would there be sufficient buyers to maintain those price levels?

[TOM4CWB]

Vader,

These prices are trading prices, and yes all the people on the planet that wanted to sell wheat cash last week sold wheat last week, except in Canada.

As far as volume goes the three US exchanges trade 10X and more the actual wheat that trades hands to the end consumer.

For instance on the Minneapolis Spring wheat futures/options in July and August 2002 records were set in Hard Red Spring Wheat (CWRS Quality) traded:

August 5, 2002

Minneapolis Grain Exchange Posts Record Spring Wheat Options Month

MINNEAPOLIS—The Minneapolis Grain Exchange (MGEX) exchanged a record 9,890 options on hard red spring wheat futures during the month of July. The previous monthly options volume record for hard red spring wheat options was established during September 1999 when 8,731 contracts exchanged hands. At month-end, open interest in hard red spring wheat options was 12,182 contracts, 57 percent ahead of month-end options open interest versus July 2001.

Year-to-date volume in hard red spring wheat options is 17 percent higher versus the same period during 2001.

Additionally, trading volume in hard red spring wheat futures during July 2002 was 110,578 contracts, the highest ever for July and the 11th highest volume month in the history of the contract. July 2002 month-end open interest in hard red spring wheat futures was 24,778 contracts, 13 percent ahead of July 2001 month-end open interest.

Kent Horsager, MGEX president and ceo, said, “Price volatility in spring wheat has increased dramatically this summer which in turn has increased both speculative and hedging interest in MGEX hard red spring wheat futures and options. Use of options as hedging instruments tends to increase in times of high price volatility.”

September MGEX hard red spring wheat futures have rallied over 60 cents per bushel since the first trading day of 2002.

MGEX, established in 1881, is the only market for hard red spring wheat, white wheat, durum wheat, and NSI and NCI futures and options. For more information about MGEX, visit www.mgex.com.

September 3, 2002

Record Monthly Trading Volume In Minneapolis Spring Wheat Futures

MINNEAPOLIS—The Minneapolis Grain Exchange (MGEX) announced today that hard red spring wheat futures volume for August 2002 was the highest monthly volume total in the history of the contract, which has been traded at the exchange since 1883. Total monthly volume was 151,950 contracts, the equivalent of 759,750,000 bushels of wheat. The prior all-time monthly volume record for hard red spring wheat futures was recorded in June 1999 when 145,620 contracts were traded.

“Concerns over the poor quality of the spring wheat crop and falling stock numbers contributed to the increased volume numbers,” said Ryan Kelbrants of ADM Investor Services, Minneapolis. “Low world production numbers, especially in Canada and Australia, were also major contributors to the active markets during August. The production numbers released over the past month are significantly lower than what we’ve seen in several years.”

MGEX, established in 1881, is the only market for hard red spring wheat, white wheat, durum wheat, and NSI and NCI futures and options. For more information about MGEX, visit www.mgex.com.


SO VADER, the average individual farm is a small volume on any given day ( a few contracts are easily absorbed, 1 contract is 136t ), in a huge volume of liquid currency flowing into and out of these markets.

All the major grain exporters globally use these 3 US exchanges to manage risk, including the CWB.

Within some countries, especially 3rd world and communist based countries with restrictive regulations, they will have major artificial differences from these world prices... Just as Canada has artificial malt barley and wheat pricing as we speak.

Vader, yes every farmer who needs to sell right now, could have the opportunity, just as the CWB hedges EPO risk by chargeing a fee, and pre August PPO contracts and unpriced basis contracts today can access these prices daily, the market is liquid enough to easily absorb any free stocks a farmer in Canada might wish to sell at "World Prices"

I hope you would want our Canadian marketers to meet the needs of western Canadain farmers, instead of spreading old wives tales and myths that a farmer can't get the good price...

Vader, can you explain to me what a good price for wheat and malt barley SHOULD be today?

[charliep]

Tom4cwb

Put options for the different US markets/different months that are 10 % out of the money (40 to 50 cents/bu) are running about US 10 to 15 cents/bu. Convert to Canadian dollars and add in the $3/t administation fee and you get close to the $13.25/t cost of an EPO.

Looking at futures again after being away, I had to take note of the inverse in wheat futures starting from the May contract on. The fact that nearby prices are higher is a good signal the market wants wheat now versus next spring/summer. No one is selling because there is a general philosophy this market could go higher yet. Thoughts.

1) If anyone thinks this market is headed higher over the coming year, this would normally be a good signal to sell cash wheat this fall at the current premium prices and buy futures/call options for next summer. Your risk factor is lots more US wheat acres and a favorable winter for this crop/prospects for high yields next year.

2) I think there is significant risk the CWB will overshoot the mark on this years Pool Return Outlooks forecasts if they have a significant amount of wheat that isn't priced until next spring/summer.

[Kasro]

Vader, I get "world prices" from the USDA reports. They are ACTUAL prices wheat is TRADING at, and USDA updates them twice a day in their reports. These are port prices. They are prices that anyone could have sold wheat for, and are in many cases likely responses to optional origin bids. It is also a market that Canadian wheat can and is priced against by the CWB or its accredited exporters. So rather than being US prices, it is more accurate to call them world prices.

Sorry, but Vader, I don't understand your questions.

First, what do you mean by "all of the countries around the world jump in and source their needs for the year?" It's probably just me, but I don't understand the logic or premise behind this question.

And second, what are you getting at by your question about Canada trying to "move its entire production into any given market at a time when prices were high..."?

[Kasro]

The prices that were backed off from the USDA are FOB values, the PRO is instore Vcr values. So there is a difference there. Plus there is a difference in the tsptn costs in each country.

If you look at cash price quotes for Bottineau ND (http://www.farmnetservices.com/nd/elevators/) the DNS 14 quote was US$4.55. That's $7.16 Cdn. If you take into account there is generally a 10 cent per bushel US spread on price quotes and tradable values (that's .15 per bushel Cdn), and the fact that Bottineau is closer to Mpls than Virden is, the PRO values end up being pretty close to quoted cash values.

I agee that the initials have to go up.

Also, Charlie nailed the answer on the discount for the EPO - it relates closely to cost of puts.

Tom

[Kasro]

Tom Halpenny,

1. The prices I used, and as provided by USDA, are west coast port elevator prices, not FOB vessel. Therefore no need to discount for the comparison.

2. I used Canadian transportation costs from the west coast to approximate Virden values. No 'adjustments' needed here either.

3. These are real prices. Actual bids. Traded values. Cold hard cash. And transparent, visible and verifiable. Non-disputable.

Compared to asking price, PRO's, benchmarks, or initial payments, they are like concrete compared to quicksand.

[TOM4CWB]

Thalpenny;

I find it interesting that the CWB equates the EPO to an option, but it is in no uncertain terms equivelent.

If I could sell the cash wheat today, and buy back a call, the actual market response on my call option is totally different than the CWB pooling account.

If I buy a March call option, and the price rockets up in Jannuary, I recieve 100% of the market increase.

With the CWB pooling account, I would assume by January 2003 only about half or less of the 2002/03 crop will be left to sell, and this will stop the price from rising by at least one half of the value, and if the CWB has significant sales booked even less.

Kasro is right on the Portland and Minneapolis cash prices, they are not FOB in a boat, they are quoted FOB if they are FOB, and I always quote in store prices to get equivelent to Vancouver BC CWB in store quoted prices.

Admit it Thalpenny;

The CWB has only come less than 5% of the way to offering reasonable marketing services to commercial wheat and barley farmers...

By the way, if the CWB does buy call or put options, to cover EPO risk, and since the futures market/options will profit the CWB at least twice what the pool can react, do you put the extra profits in the pooling accounts or in the contingency fund for EPO contracts farmers paid this risk management premium for?