2008 crop CWB Wheat and Barley poll

[TOM4CWB]

Charlie,

Tell me if I got this wrong;

I believe the CWB 'Cash' prices everything they sell into the wheat market. If a customer wants to pre-price the CWB books the futures, then removes the futures position; when the cash sale is made to the customer to get the risk management effect of the hedge.

Am I off base here?

[charliep]

Not sure on what you are saying. The CWB obviously signs priced contracts with customers although I am not so sure they would go this far forward (start selling 2008 crop). They will all do things like book the basis portion is that makes sense. Most of the customers are sophisticated enough that they can also use the futures market (although this involves risk as September/December 2008 are likely pretty thinly traded.

The easiest way is to match farmer 2008 contract volumes with actual new crop sales that have been booked with customers. Always questions around CWB sales would be matched with these farmer programs but farmers who are forward pricing this far out should be getting a pretty hefty risk bonus.

[TOM4CWB]

Charlie,

I asked this because the CWB is talking about basis risk in a way that leads me to think they don't lock in the basis on wheat sales until they load the ship at the port.

Adrian also made it clear a few years ago that the CWB did not hold specific futures postions against PPO contracts growers had hedged, through until the FPC had been filled. When I brought this up on the Winter Wheat I needed to keep for Pedigreed Seed (Which it really was) and liquidate my contract, the CWB operator was sheepish and didn't deny this was the case. I asked why when there was a $25/t profit in the futures hedge, should I be paying the CWB $35/t to liquidate my FPC contract. No response. This leads me to believe the futures positions held now are done in much the same manner as when Adrian told me what the CWB did.

From what you have said I must assume the CWB did not go into these technical issues very much when you met them on Friday?

[charliep]

Not to this level of detail. My understanding is there are futures positions for all unsold grain in the pool against the volume of producer pricing options contracted (i.e. fixed price and basis contracts). These positions are unwound as the percent of the pools that is priced grows. No discussion as to how the CWB handles basis risk of the producer pricing options adjustment factor relative to the market.