2003-04 PRO

[TOM4CWB]

Charlie;

I see that AAFC has put out a PRO already... this was on DTN Feb 05/03 oilseeds and grains...

"The Canadian Wheat Board (CWB) pool return for No.1 CWRS 11.5% protein is forecast by AAFC at $228/t, in-store Vancouver/St. Lawrence (I/S VC/SL), vs. the CWB 2002-03 January Pool Return Outlook (PRO) of $271/t. Ontario wheat production is forecast to increase by 55%, to a record 2.1 Mt, due to increased area. The Ontario Wheat Producers' Marketing Board's pool return for No.1 CEWW wheat is forecast by AAFC at $135/t, landed basis, about $30/t below 2002-03."

With Dec. 03 DNS wheat trading at $3.68US, this is actually low... isn't it?

The CWB today is getting an average about $265/t when the March 03 is only trading at $3.84US

This should mean that our 1CWRS 13.5 should be worth, fall of 03, over $240/t.. if we were allowed to hedge it today, that is if the CWB were to give a reasonable basis...

Comments?

Or did I miss something?

[charliep]

I come up with similar numbers to that of Ag. Canada. Based on your assumed Dec. futures (keeping in mind we are looking at a year long average price and a pool that includes an additional nine months of sales), I come up with converted Dec. futures of Cdn $210/t (US $3.68 MGE Dec. futures times 1.55 exchange rate - 64.5 cent loonie??? times 36.74 bu/t). My assumption is basis for 1CWRS 13.5 protein should be anywhere from $20 to $30/t above this. This is not based on analysis but rather observing where the CWB established basis levels in the past. That would give a 1CWRS PPO price of $230 to $240/t.

The CWB PRO process (release Feb. 24) will be different than this. I look forward to seeing the numbers.

Just curious as to how you came up with your forecast Tom4cwb.

[TOM4CWB]

Charlie;

I see the USDA has come out with new numbers for WHEAT Farm Gate Average Market Return:

2002 Crop: $3.80/bu... $212/tCDN(1.52)
2003 Crop: $3.25/bu... $181/tCDN

So Charlie, since this is for a lower quality wheat, closer to a Hard Red Winter Ordinary on average...

Doesn't this leave Canadian Farm Gate Average prices far below US prices?

[charliep]

Comparing the US and Canada is like comparing apples and oranges. I will leave for others.

A note is that the situation among many of the emerging exporters is different this relative to last - colder winter/crop not in as good a condition. 2003 promises to be interesting. My hopes are for better yields - I would much rather sell a bigger crop at a lower price than to have the opportunity to no crop at a high price.

[TOM4CWB]

Charlie;

You said, "Comparing the US and Canada is like comparing apples and oranges."

WHat exactly do you mean by this?

THe USDA projects the USA will grow close to 60mmt next crop year... at an average of $3.24/bu... farm gate price.

Shouldn't we be able to get better prices because we grow a higher % of high end wheat products(CWRS/Durum)?

AND we will likely grow less than 20mmt of wheat...

Why are we expecting such poor price performance in the 03 crop for marketing of our CDN wheat?

[charliep]

What process would you suggest to forecast 2003/04 CWB pooled returns?

[TOM4CWB]

Charlie;

My biggest surprise is with the lowest carry over stocks in modern history in Canada... that we are close to the price levels of last year at this time... THis does not make a lot of common sense, especially with the dryness we had this winter.

The ground is frozen deep, and runoff may fill a few pot holes, but we need mega spring moisture(May-June) to get a normal crop!

THe drought hasn't been broken in Australia, and Russia(now the #3 exporter of wheat behind the EU and US) has had a poor winter for wheat.

If we are counting on Russian and Ukrane wheat to rebuild world stocks... high quality wheat (CWRS) should remain in tight supply in 03... so basis levels should be nearly as good as this years.

THerefore since the CWB is getting $265/t for CWRS and $230/t for CPS... farm gate prices are at least 10-15/t lower than realistic expectations... and the $2.50 Mar 04 futures backs this up.

Feburary is historically the low month in the seasonal winter prices... a reason Dec. was used in the past for Crop Insurance... as Dec gave a more realistic average feel of what the next years prices might turn out like.

Instead of Crop Insurance being innovative... and topping up acerage coverage with rainfall or heat/wind stress insurance... they took the easy way out... and didn't provide what farmers needed... decent cost of production insurance coverage.

[TOM4CWB]

That was CBOT Corn $2.50US Mar. 04

[charliep]

You are talking to the mechanic who works on prices - not the policy guru for crop insurance. If the current process is missing the mark on prices (from the two threads I am not sure whether you are telling me wheat prices are too high or low), we can discuss the mechanics of tying futures to crop insurance payments. Basis is a problem and I am looking for ideas within the confines of current pricing practices (including the realities of the CWB).

An interesting comment is that under the new iniatives, farmers can be potentially covered both ways in terms of price changes. The variable price benefit (now compulsory) covers upside movement on claims coverage (must have a 10 % increase in prices). The spring price endorsement provides downside price coverage if prices decline by more than 10 % on actual production up to your insured yield.

This program provides the price setting mechanism (both spring and fall) a whole new set of challenges.

I look forward to your comments but be specific. It may be late for this year but obviously AFSC will be reviewing things over the summer with the idea of improving.