Oct 2007 CWB Wheat PRO... What will it do?

[TOM4CWB]

Charlie,

I see US Wheat Associates report... and a wheat futures limit up the Historic High Basis... all leave good reason for the CWB to maintain or raise the PRO this month!

We had a good laugh in the elevator yesterday... the reasons the CWB always has a lower CDN wheat price than our US brother and sister growers get... is because of the US/CDN$! ($1.035 today)

I note a limit up move in the US futures... resulted in the CWB raising Fixed Price Contracts only $5/t... instead of the $10/t the market moved yesterday with the CWB @ $285/tCDN West Coast.
It is shocking to see CWB CDN West Coast Port prices nearly $100/t below US PNW port prices on DNSvsCWRS.

It is clear the US is going to sweep the wheat bins out... BEFORE SPRING!

Here is the US Wheat associates Highlights:

• Export basis offers are near historically high levels after jumping last week. SRW basis prices are currently 79 cents/bu, up from option (0 cents) earlier this summer. The premium for higher (12%) protein HRW rose again this week at the Gulf on very short supplies. Flat priced SW dropped 25 cents this week, diving with the CBOT earlier in the week but not rebounding as strongly today.
• This week, the Russian economy ministry suggested an increase in its wheat export tariff from 10% currently to 30% of export value, while not less than $31/MT. The tariff will precede the sale of grain from government intervention stocks to bring down domestic prices.
• In testimony to Congress USDA Chief Economist Keith Collins said he expects wheat acreage for the 2008/09 marketing year to rise 6% over last year to 26 million hectares. That would be a 12% increase over 23.2 mha planted in 2004/05. Reports suggest a large increase in SRW seedings on double cropping and good planting weather, stronger SW plantings shifting from HRW in the PNW, stable to increased HRW and durum acreage and a decline in HRS acreage as barley, pulses and hay prices remain strong.
http://www.uswheat.org/USWPublicDocs.nsf/2a788abb563a2d3285256f35006322c1/9fb25ab5826a41968525737900468e73/$FILE/PR071019.pdf

PNW DNS 14px
Nov/07 Basis over /MGE
$378/t $1.60/bu

PNW HRW 11.5px
Nov/07 Basis over/KCBOT
$371/t $1.40/bu
PNW HRW ORDpx (Good indicator of CPSR prices)
Nov/07 Basis over/KCBOT
$369/t $1.35/bu


Gr. Lks. DNS 14px
Nov/07 Basis over/MGE
$342/t $0. 60

USGulf HRW 11.5px
Nov/07 Basis over/KCBOT
$354/t $0.95/bu


Soft White Wheat remains about $200/t above 2006 Nov levels ($180/t) @ over $380/t now.

So what is the take on this... will the CWRS PROs go up, down, or remain the same!

I see the 100% EPO @ $25/t cost ($274/t) Friday.

I note when the PRO came out Sept 27/07... the $299./t 100% EPO was
$19.50/t charge... the day before (Sept 26/07) on Aug./07 PRO they charged $16.75/t on $258/t.

PPO Basis levels/EPO Charges defy normal economic logic... and reasonable common sense!


I vote for; Down $5/t. (the difference in the EPO!)

This is CWB "risk management" at its most eccentric... Kind of like the "Single Desk" logic it uses!

[gjoost]

With the asking price for durum going up at the coast, why would the price for the 100 % EPO be going up? It started at 41/mt and now sits at about 54/mt. Is this an indication that the CWB has sold most of its durum, and is not able to capitalize on many tonnes at the higher prices? My guess would be for hrsw prices to be down 10 mt and durum to be even.

[just_wondering]

There is now 100% call on CPSR.
From this am I to assume that the CWB is 100% sold, possibly at record high prices?
Or would I assume that the CWB is just plugging the system with unsold grain for me to pay for storage costs from the pooling accounts and basis from CWB options.
how will 100% call effect DPC's and the pool?

[FarmRanger]

The thing that bugs me most with durum is the CWB's marketing style. On my farm I rarely presell more than about 10% of my production before harvest. The CWB obviously sold much more than this amount or the PRO would be MUCH higher.

So, on my farm I can very conservatively estimate that the CWB cost me approximately 2 years of my farms total profit margin, just on durum alone in the difference between the PRO and the world market price. It makes me sick thinking about it, when I look at the amount of mortgage I could have paid off this year with that money.

[mustardman]

Here's my w.a.g (wild ass guess) , durum pro will be up $109/tonne

[charliep]

Will note the following quote from the CWB bulletin.

The CWB is working with the Government of Canada to get farmers’ money to them as quickly as possible. Increases are currently being considered for the 2007-08 initial payments at the following levels: $44 to $65 per tonne for milling wheat, $116 to $131 per tonne for milling durum, $50.50 to $61.50 per tonne for malting barley and $100 per tonne for feed barley.

Based on this release, I would expect the PRO to stay unchanged for wheat to higher for durum and the barley. Interesting, increase would put all wheat (including durum) at close to 75 % of the September PRO and barley at 90 %.

The big range (particularly on wheat) says changes to spreads so will have to be carefull here. Would spend some time looking a initial payment spreads relative to the PRO on Thursday.

[charliep]

mustardman

You may be right on your durum forecast. Just curious however why both the premiums for EPO (note doubled between the August and September PRO) and the discount on the FPC on durum have stayed so high? If the market is high enough to justify the increase you suggest (may be), then why haven't the producer pricing options changed to reflect this?

I just find it curious the CWB is more than willing to pass along the risk of higher initial payments to the tax payer but still gouges the heck out of anyone who uses the producer pricing options? Is there a disconnect here?

[gjoost]

That is my point Charlie, the epo has gone up at least 10.00 a mt since the last pro. If Durum prices are going up why would the EPO premium be up? If that is not a market signal I dont know what would be.Visibility within these programs makes them worse than a crap shoot. I guess we will keep working with the system until the system implodes on itself.

[charliep]

Also have observed the CWB EPO premiums tend to increase as prices go higher. Seems to trade like a call. Would make more sense if it was traded like a put (higher hedgeable prices mean less risk and lower cost) but doesn't seem to work that way. A person needs a real understanding of how the CWB handles their pooling risk and how they pass the cost of these strategies back to farmers.

[gjoost]

And that is why I take the EPO, because you have no idea what will come at you next from the CWB. Let's say the durum pro goes up tomorrow by 60 dollars, can I take the 90% EPO again?

[TOM4CWB]

Charlie,

I see the USDA has a good daily site with grain prices @ http://www.ams.usda.gov/mnreports/BL_GR110.txt

BL_GR110
Billings, MT Wed Oct 24, 2007 USDA Market News

Closing elevator bids: Compared to Tuesday, Winter Wheat 27 to 30 cents lower;
Spring Wheat 26 to 30 lower; Durum Wheat 2.00 lower; Feed Barley mostly steady;
Malt Barley steady. Wheat prices are in dollars per bushel.

*Montana cash prices*
US 1 Hard Red Winter Wheat US 1 Durum
Ordinary 11 pct 12 pct 13 pct 13 pct
Billings Area 7.71-8.03 7.83-8.23 7.95-8.25 8.01-8.27
Golden Triangle 8.04-8.17 8.04-8.17 8.08-8.22 8.16-8.28 15.50
Great Falls Area 7.94-8.03 8.07-8.13 8.11-8.21 8.20-8.29
Northcentral Mt 7.95-8.14 8.01-8.19 8.10-8.21 8.16-8.23
Northeast Mt 7.84-7.99 7.90-8.05 7.95-8.10 8.02-8.17 15.50
Southeast Mt 7.49-7.96 7.49-8.02 7.55-8.07 7.59-8.14
Southwest Mt nb nb 8.39 nb

US 1 Dark Northern Spring Wheat US 1 Soft White
13 pct 14 pct 15 pct Wheat
Billings Area 8.01-8.14 8.13-8.30 8.13-8.38
Golden Triangle 8.37 8.22-8.37 8.22-8.37
Great Falls Area 8.18-8.29 8.18-8.29 8.18-8.29
Northcentral Mt 8.18-8.25 8.19-8.26 8.19-8.26
Northeast Mt 8.04-8.24 8.04-8.24 8.04-8.24
Southeast Mt 7.61-8.13 7.61-8.13 7.61-8.13
Southwest Mt 8.41 8.61 8.77

US 1 Malt Barley US 2 Feed US 2
Harr/cwt Barley/cwt Oats/cwt
Billings Area na na
Golden Triangle 12.50-14.00 9.75-10.00
Great Falls Area 12.50 9.75-10.00
Northcentral Mt 10.00-11.00 9.50-10.00
Northeast Mt 12.50 9.00-10.75
Southeast Mt 10.75
Southwest Mt 8.50

*Prices not necessarily representative of all terminals within MT.

Source: USDA Market News Service, Billings, MT
406-657-6285.
24 hour price information 406-657-6400
www.ams.usda.gov/LSMarketNews


1420m mjh

I see this gives a good reflection of CWB pricing changes... if the CWB would only charge a fair basis we could be competitive with Montana.

Too bad we are not $20/t above Montana farm gate prices... like our grain system could actually deliver... if we really had an "orderly marketing" competitive system as was the case in barley during June and July!!!

[Zaphod]

My guess would be $15-20 a tonne lower on wheat with MGE about 60-80 cents a bushel lower than at the last PRO.

Durum will be up but I won't guess how much. A buddy in the milling business out east told me the CWB has been waiting with durum sales until the US runs out of product. Will they wait too long and chase the market lower? It's happened before.

Barley? Who knows? It all depends on whether they make any export sales.

Interesting that the CWRS EPO cost 10 cents a bushel more yesterday than on Tuesday. Does that mean they are trying to discourage people from taking the EPO just before they drop the PRO today?

[terralex]

I think that CWRS EPO increase and the rise in the FPC basis is designed to scare people into staying in the pool account.

My call is that the CWRS PRO with stay flat to maybe a $2 drop. EPO costs will increase and FPC basis will also increase. This will ensure that any fence riders will stay in the pool, and not take out any pricing options before Nov. 1.

The big drop in the PRO will occur in December, well after the sign up date for any PPO options.

It is all about making themselves look good.

[charliep]

And the answer is (drum roll).

New Record Highs for Durum in CWB 2007-08 PRO
Winnipeg -- The CWB today released its latest Pool Return Outlook (PRO) for the 2007-08 crop year. Milling durum PROs are $27 higher compared to September, as tight supplies continue to pressure prices to new record highs. The PRO for milling wheat is $2 to $5 lower than last month's PRO, mainly due to a slightly weaker outlook for world wheat market prices and the stronger forecast for the Canadian dollar. PROs for feed and malting barley are unchanged from last month.