Rumour

[mcfarms]

ON another board theres a rumour that it's the CWB thats caught short in the MGE.

[mcfarms]

JUst to update this, it made me wonder so if this is true what are the implications, so I phoned someone who I deem to be somewhat knowledgable on this sort of thing (ok real knowledgeable) and during the course of our conversation it occured to me that the board would be likely caught sort through the PPO's as much as anything and that any damage from this would be bourne by the money in the contingency fund ( or as I like to call it mine and Tom's former retirement fund)
Thoughts?

[charliep]

The interesting process for the CWB will be winding down the hedge portion of their producer pricing options. That is, as the CWB makes physical cash sales, they have to offset their short positions on the futures markets. In limit move days, this becomes difficult.

Realizing no one has seen the reporting of results on the 2006/07 producer pricing options and impact on the contingency fund, the current crop year will be even more interesting. The volatility in the 2007/08 crop year will test any risk management strategy. Getting a hedge off today in the futures will be like dismounting the meanest killer brahma bull at the rodeo. You know you are going to hit the ground hard but real challenge is not to get kicked in the head/have the bull take their horns to you.

[TOM4CWB]

Charlie,

I see this on Reuters from my DTN

"They noted that while the MGE March contract closed limit-up at $14.63 Tuesday, moves in wheat options indicated the contract was valued an additional $1.77 higher, at $16.40.

Open interest in the March -- the number of contracts not yet offset by an opposite position -- stood at 16,375 contracts after Monday."

That is over 2.2mmt!

WOW this aint over!

Here is the whole article:

MGE Raises Wheat Trade Limit
MGE to Raise Daily Trade Limit in Wheat to 40 Cents
Wed Feb 6, 2008 08:37 AM CST

CHICAGO (Reuters) - The Minneapolis Grain Exchange will raise the daily trading limit on its spring wheat futures contracts to 40 cents per bushel, from the current 30 cents, starting Feb. 12, the exchange said in a notice on Tuesday.

The Minneapolis market has been on fire over the past month, soaring to all-time highs as end-users such as exporters and flour millers scramble for extremely scarce supplies of high-protein spring wheat.

Also, some commercials are caught in short, or sold, positions in the front March contract, traders said.

As a result, the contract has closed up the 30-cent limit 11 times since Jan. 10, including in eight of the last nine sessions. MGE March spring wheat settled limit-up on Tuesday at $14.63 per bushel, an all-time high for any U.S. wheat contract.

The move to raise the daily trading limit has been in the works for about a month and was approved by the U.S. Commodity Futures Trading Commission in the last day or so, said Nancy Krull, a spokeswoman for the Minneapolis exchange.

"Our contracts committee met Jan. 7 and approved a recommendation to raise the contract price limits. That was then presented to the board of directors on Jan. 14 at their meeting," she said.

"It's obviously a volatile market," she said.

Officials with the CME Group, the parent of the Chicago Board of Trade, the world benchmark for wheat prices, and the Kansas City Board of Trade said they were considering similar steps in raising the daily limits for wheat futures.

"We would like to have all the grain markets in line but we've not made a decision yet," said CME Group spokesman Allan Schoenberg.

Given the sharply higher moves in the Minneapolis market in recent days, analysts said the higher price limit would not have much immediate impact.

They noted that while the MGE March contract closed limit-up at $14.63 Tuesday, moves in wheat options indicated the contract was valued an additional $1.77 higher, at $16.40.

Open interest in the March -- the number of contracts not yet offset by an opposite position -- stood at 16,375 contracts after Monday.

"What they are hoping is that they won't be locked up limit, like we were today, so then traders can trade freely in and out of positions," said Shawn McCambridge with Prudential Financial in Chicago.

"Eventually, yes, we will get back to a more normal trading structure, but right now, it doesn't look like for the short term that it will (make a difference)."

(AM)

[agstar77]

And LW said the bins weren't empty. Must be a new type of winter wheat that grows in snow.

[LWeber]

It must be 400,000 MT of gravel they loaded out last week. Surely importers wont know. Gives new meaning to HVK.

[agstar77]

Basically what the markets are saying is that almost all of the 2007 crop is delivered or committed. Does not mean that previously committed sales won't be met. However if the situation gets worse , could we see an embargo on exports?

[TOM4CWB]

Agfstar77,

What about my neighbours with 1000's of tonnes of high quality wheat... that is worth over $650/t?

Must they save it for you... so the CWB can ay wild margin calls/penalties... then sell that wheat next crop year @ $300/t discount?

The CWB will directly be stopping the creation of $millions in prosperity... that would literally pay all their debts off... and pay gobs of income tax on top!

Give us our export licenses Agstar77... and watch us work like beavers to meet the demand of the market!

If you do... there will be wheat showing up in volumes you never thought possible!

[furrowtickler]

Agslump- we only commit b/c we have no choice.

[furrowtickler]

My wheat bins are still half full, how about you?

[Zaphod]

Are the MGE limits going to expand just in time for the market to tip over?

[Zaphod]

It's interesting that if the CWB is a major short in this market, they may not be able to deliver to get out of their position. Apparently, the MGE contract specs state that the party taking delivery has the right to request a certificate of US origin for the wheat. So the threat of delivery isn't much of a threat in the case of Cdn wheat. And with the market doing what it is, the spec longs aren't highly motivated to accept delivery.

[parsley]

"MGE contract specs state that the party taking delivery has the right to request a certificate of US origin for the wheat"

Extremely interesting observation Zaph. Do you suppose the CWB even read the fine print?

I don't think they knew about FOREX until chaffmeister posted it.

Parsley

[Zaphod]

They may have read it but probably didn't think it would ever cause a problem. But if the wheat bins in North Dakota really are empty, who else can possibly threaten to deliver except the CWB? And why would the longs want to get out? This thing could keep going on forever unless the regulators decide to step in and call for positions. That's what collapsed the canola market back in 1994. Just a heads up.

[AdamSmith]

Does this not explain why the the cash bids are way out ahead of the futures?

The longs know the short is not in a position to deliver, but they are trying to force delivery from a player who they know doesn't have wheat in position for delivery and that the only possible way for the short to aquire physical delivery wheat is for them to buy it from the cash market and they also know that the only place this short can buy U.S. origin wheat is from an export terminal like Portland and that's why Potland is $1.75 or more above Minny.

Fish in a barrel for the longs,

standing on a chair and throwing a noose over a beam and contemplating the next move for the short.

If it is the cwb,

couldn't happen to better bunch of guys.

Waterloo!, Waterloo!