MGE Basis CWB PPO Rip OFF 2007-08

[TOM4CWB]

MCfarms,

Read this and weep.

To think the CWB locked me in @ $.30 cents UNDER MGE Futures Price.

"Basis prices jumped in both the Gulf and PNW as exporters search for supplies. At the Gulf, SRW basis doubled to 60 cents/bu and HRS basis finally broke the 2005 record for Gulf origination, now at a $2.35/bu premium. PNW HRS is offered at a $3.00/bu premium to MGE futures while SW gained another 50 cents/bu, now valued at $16.50/bu ($606/MT)."

http://www.uswheat.org/priceReports/doc/76C8321AA842C4D7852573DB00710A47?OpenDocument#

So the CWB got my wheat @ 30 UNDER... and sell it @ 300 over.

I believe the only fair way to solve this basis problem is to have the CWB offer a US Basis contract.

I am out $3.30/bu... and the pool gets it all.

So this means my wheat that was hedged lat January @ $224/t... is actually worth $334/t today.

INSTEAD I am going to be paid a whopping $211/t instore basis Vancouver Canada.

If 2008 isn't the biggest grain robbery in the CWB's HISTORY...

That the CWB has pulled off... on "Designated Area" wheat growers...

I would like to know when they have taken more with less resistance!

I know I know... resistance is futile!

[TOM4CWB]

Jan 25/08 Wheat Report from US Wheat Associates:

U.S. futures markets: Winter wheat markets gyrated erratically with global stock markets this week while Minneapolis strengthened independently. Expectations for a mammoth 2008 winter wheat harvest and rumors that Argentina and the Ukraine will reopen exports soon allowed winter wheat futures markets to fall while HRS joined durum and SW with an arithmetically challenging balance sheet that pushed cash prices dramatically higher. Sales remain robust and indicate that many buyers are putting on preemptive coverage. For the week, SRW nearbys at the CBOT fell 30 cents/bu, the KCBOT was down 41 cents/bu while the MGE shot up 72 cents.
Export sales continue to greatly exceed sustainable levels. Sales of HRS currently exceed the USDA forecast, with 19 weeks remaining in the marketing year. At 423,000 MT, all class sales were nearly five times greater than the 89,000 MT weekly average needed to make the USDA forecast that will leave U.S. stocks at the lowest level in 60 years and the lowest stocks-to-use ratio ever. The tight situation has caused several buyers to cover well in advance. With nearly 250,000 MT of new crop booked on today's report, 1.5 MMT of 2008/09 supplies have been purchased, the highest level of new crop bookings since 1980. Traders anticipate next week's sales report will be at a similar level as this week.
Winter wheat production up: U.S. SRW will be the first wheat harvested this spring, hopefully in time to meet demand as global supplies are seen dwindling. The International Grains Council forecasts acreage in the Ukraine to increase by 12%, 5% in the EU-27 and 14% in Canada to help replenish exportable supplies next year. IGC forecasts global 2008/09 wheat production to increase by nearly 40 MMT or 7%.
Spring wheat production to fall: Analysis by the Newedge Group shows that U.S. producer returns in 2008/09 from HRS would exceed soybeans by $14/acre. North American spring wheat acreage is still expected to fall based on high fertilizer prices, high prices for barley, canola, edible beans and durum, as well as higher winter wheat acreage planted last fall in the spring wheat region. Informa economics forecasts a 5% decline in HRS acres.
Basis prices jumped in both the Gulf and PNW as exporters search for supplies. At the Gulf, SRW basis doubled to 60 cents/bu and HRS basis finally broke the 2005 record for Gulf origination, now at a $2.35/bu premium. PNW HRS is offered at a $3.00/bu premium to MGE futures while SW gained another 50 cents/bu, now valued at $16.50/bu ($606/MT).
Price spreads: The HRS nearby futures premium to SRW exploded to $3.34/bu after trading at a 70 cent discount in September while the Gulf FOB cash spread between HRS and SRW is at $5.74/bu (211/MT). The HRW cash value premium to SRW fell 29 cents to 57 cent/bu as low protein HRW is lacking export demand. The SW premium to SRW is at $6.57/bu ($241/MT), up from $1.06/bu last October. New crop HRS prices continue to fall against old crop withSeptember '08 delivery HRS at a $2.23/bu discount to nearbys.
Ocean freight rates continue to plummet as vessel owners search for shippers. China's absence from the freight market has left a vacuum as negotiations with Australia and Brazil for iron ore continues. Estimates vary on how quickly, and to what level, rates will rebound once Chinese shipments resumes.

[mcfarms]

Tom
I gave up and locked my basis towards the end there liekly just to give myself the illusion of a bit of control. I haven't been real pleased though with th ebasis levels for Canola this winter either and that's in teh face of the best prices I've ever had too. But I agree the term basis should be removed from the PPO's because what the marketplace has taught us affects basis and what occcurs in the PPO is totally seperate in my experience with them.
I always thought demand should narrow basis levels but apparently not so. I still like the term PPR.(pool protection Racket) rather than basis.

[TOM4CWB]

mcfarms,

The CWB makes a BIG point of US grain growers hedging "early" and doing so much worse than the CWB's pool marketing system.

What this issue presents... is that DEMAND is sucking every last kernel out of US grower's bins. The end user/marketers are paying up on both the futures and basis... to assure growers plant again.

How exactly can they pay me? THEY can't, because the CWB intentionally takes is what my family deserves... and gives it to their friends.

This is corrupt, wrong, and should be challenged.

Charlie, we (AB and SK gov's) need to do something.

At $211/t ($165/t farm gate) for CWRS@ about 1t/ac... my farm got no where near the cost of producing the wheat.

THis is straight deceptive "single desk" warped mind-bending corruption.

[charliep]

The CWB did a presentation on Basis levels at the crop production days.

http://www.cropweek.com/presentations/2008/2008-jan11-cwb-weatherald.pdf

Might also note my that the CWB put some new ideas forward at their combine to customer program this year. Did anyone attend?

[charliep]

tom4cwb

I don't think anyone except the CWB operations side knows how they handle basis risk on PPO contracts.

To reduce this risk, lower the cost to farmers who use the program and be more transparent, the CWB board of directors would have to allow the operations side to do some innovative things like shorter pooling periods/multiple pools within a year, matching producer pricing options against actual sales/basis used in these sales, etc. Till the CWB moves down these roads, you will have all the problems you talk about.

[northfarmer]

I had a buddy come up with a good one, but it might be old already:

PPO - Pool Protection Option.

I am so glad I signed up the rest of my CWRS on fpc in Nov and left nothing for the Pool. I am big money ahead even though at the time the fpc pricing was below the pool pro at the time in NOV. I had distrust and I was proven right, evn if i end up subsidizing the pool I am money ahead.

SCREW the CWB!!!!

[TOM4CWB]

Charlie,

If I got this right... the basis is calculated on the near by futures price compared to the PRO?

Why isn't the basis the difference between the futures and the selling price when the basis is locked in?

How on earth does this make any sense?

The CWB puts in the contract that they will charge cost on these PPO programs.

How on earth does this CWB calculation determine fair cost... and pay me for the risk I take on... when I sign up to a CWB PPO?

[charliep]

There are others participating in the Commodity area that are better able to answer the question I am. I suspect the answer would be the CWB will not match PPO contracts against an individual sales/basis (would require a CWB judgement call as to which sale the farmer contract should be applied against) but rather against all sales in the pool (existing and planned). Needs further CWB clarification so will leave for them to answer.

The proposed CWB malt barley cash plus program is a significant departure from this philosophy (matching farmer payments/delivery commitments against sales) but that is unclear given no one understands how the CWB proposes to calculate the farmer payment. The industry request was to have a very exact (and perhaps known) relationship between the price the selector paid and the farmer payment under CashPlus.

To go back to another, the CWB has been talking about PPO alternatives in their customer to combine seminars.

[TOM4CWB]

Charlie,

I don't understand how anyone can match what the Saskatoon presentation says... with what CWB written documents say that define my contract with them!

2008-09 Basis Price Contract – Wheat
BPC – Wheat
What is it?
The Basis Price Contract (BPC) for wheat is a pricing option that offers producers the opportunity to lock in a futures price one year in advance of harvest. You will have the opportunity to lock in the December 2008 futures from September 4, 2007 until October 31, 2008. The basis lock-in period runs from February 25, 2008 to October 31, 2008.

The BPC is a pricing commitment requiring 100 per cent application of deliveries. Since the BPC provides forward pricing opportunities prior to harvest, a 2008-09 CWB Series A, B, or C delivery contract or a Guaranteed Delivery Contract (GDC) is required once you confirm your production.

How does it work?

The BPC provides you a value outside the pool account that you can incorporate into your farm management practices for price risk, budgeting, fixing margins, planning seeding and improving cash flow. On delivery, you receive the initial payment for the actual grade delivered. An additional payment will be issued by the CWB within 10 business days if the BPC is fully priced. Additional payments on BPCs that are not fully priced are not issued until the full contract value (basis and futures) is priced. Producers who choose a BPC are not eligible for adjustment, interim or final payments from the pool account."

http://www.cwb.ca/public/en/farmers/producer/fixed/pdf/08-09/worksheet/0809bpc_ws_wheat.pdf

Let me get this right Charlie:

The CWB promotes the program as follows...

"How does it work?

The BPC provides you a value outside the pool account that you can incorporate into your farm management practices for price risk, budgeting, fixing margins, planning seeding and improving cash flow."

Yet this is actually not how it works at all. If the futures price goes higher... the basis will be lower... to bring the price in line with the pool... from what I see in the Saskatoon presentation.

Why isn't this generally avaliable information? Why isn't it spelled out in the PPO contracts?

Why isn't there a compensation procedure that corrects the PPO FPC to reflect when the futures where locked in?

Isn't it double jeopardy to take a huge adjustment off my payment... when I locked in at a low futures... when it is supposed to catch those locking in at a high futures?

SO How does this honestly match up with the literature promoting the PPO CWB Program?