FALL 03 CWRS Prices

[TOM4CWB]

Charlie and Lee;

I see you folks suggesting that the CWB is justified in announcing the fall 03 CWRS #1 13.5 PRO at $216/t

I don't get it.

Here is what the USDA reports on price trends;

http://www.ams.usda.gov/mnreports/JO_GR110.txt

US 1 Dark Northern Spring Wheat (with a minimum of 300 falling numbers and a maximum of one percent total damage) This is equivelent to #1CWRS 13.5

Grade..DateM/D/Y..US Portland Price

HRS 14% 02-01-02 $3.98/bu

HRS 14% 08-01-02 $4.52/bu

HRS 14% 01-02-03 $4.66/bu

HRS 14% 02-21-03 $4.82/bu

HRS 14% 02-28-03 $4.79/bu @ 1.48 is $7.09/bu or

$260/t CDN

Funny how this is only $10/t below the PRO this week for the 2003-03 CWRS #1 13.5 PRO... and the CWB PRO drop has been more than the Portland drop in the cash price...

Now for new crop HRS 14% August New Crop $4.43 to $4.50/bu…

If we use $4.46 @ 1.51CDN Sept 03 conversion, this is $6.73/bu or $247.45/t while the CWB is offering under $220/t

The Feb. 28th value of the CEC CDN $ vs. US is 1.48, while Sept 03 is 1.51 and Dec 03 is 1.518... which means the further the CWB hedges into the future... the more money vs. nearby sales can be hedged.

How can I sincerely us CWB PRO pricing signals... when the pool seems to do only one thing... assure us of a well below average price?

Doesn't this only prove that the CWB monopoly only assures us that the Canadian price is lowest price and the lowest price is the LAW?

Doesn't this again prove the Americans are right... the CWB under cuts prices... and is gearing up already to undercut US and world prices in the fall of 2003?

[TOM4CWB]

Charlie;

On this report I see;

US 2 or btr Northern Spring Wheat, 13% protein.....$4.70

US 2 or btr Dk Northern Spr Wheat, 14% protein.....$4.73

US 2 or btr Northern Spring Wheat, 14.5% protein.....$4.76

This proves only one thing... the Dark Hard Vitrous Kernel percentage in the sample for instance between a number 1CWRS and 3CWRS is basically irrelevant this year... a Canada Feed that has good milling properties e.g. falling number... is worth the same basic price as the #1-2 grades this year.

THis is not the first time this has happened...

I delivered #1CPS with a HVK of 30% in the US market... and got a Northern Spring Wheat #1 for it a couple of years ago.


The use of variety and set CGC grade specs through the CWB pool formula... is obviously costing us millions upon millions of dollars this year in particular...

Obviously Russia and Ukrane have walked into our markets with quality the CWB would call feed wheat... and these customers are making bread out of this wheat... and good enough bread that our high quality wheat prices have fallen through the floor... as it is obvious no-one needs our high quality wheat.

And I heard the CWB's Brian White deny a long term problem for our high quality CDN wheat... to compete with former FSU wheat... 7mmt to 23mmt... this year... while the 03-04 PRO says exactly the opposite...

I guess it is no problem for the CWB anyway...

WHAT A DEAL

[charliep]

Tom4cwb

This is the CWB's issue so it is them that should be responding. They are the ones that have chosen to base the Producer Pricing Options off a pooling year versus a spot futures.

An observation I will make is that the basis is consistent with that used in prior years in the case of CWRS. Previous years opening PPO have been in this range. I will not even try to justify the basis used in the other classes.

You are right about basis levels at the current time (comparing the recent 02/03 PRO to the old crop converted futures). The higher than normal premiums reflect the small size of this years crop and targeting higher higher priced customers.

I would also not be counting on these forecasts as I think they have room to come down even if US wheat futures stabalize. Farmers in the 02/03 still bear full price risk (or on the other side, will benefit from higher prices if they occur).

It is interesting to see different peoples (including the CWB) definitions of risk/hedging. My definition is crop sold/money in the bank. Farmers money from CWB sales is not in your bank and every farmer still bears price risk.

The question really comes down to whether people sign in the coming year. There have been changes. Have the changes been enough?

[TOM4CWB]

Charlie;

From a practical point of view... how have the CWB changes really helped reduce a farmer's risk?

1. Obviously, the CWB can end these programs at any moment... as is written into the contract.

2. Next fall, are we absolutely assured that the exchange of futures will be allowed in pricing grain for 04-05?

3. On the risk management side... why doesn't the CWB hold a futures position, until the physical grain is delivered... as no-one knows for sure what will happen until the farmer actually receives graded grain receipts...?
Liquidations must always be left open because of the refusal to pay a fair price by the CWB... on feed wheat.

The CWB is content to offer a PPO system that pads the pooling accounts.. at the cost of those who need marketing choice... but cannot get to a fair basis on a cash price... Competition seems like the only answer... to cause the CWB to offer fair contracts...

[charliep]

I agree with your comment #3. A simple calculation of profit or loss on the futures position (adjusted to Cdn $) minus enough penalty to stop people from using as simply a futures positon would be a preferred route. The current grade and protein spread risk combined with PPO basis risk (under the new program, this risk should be reduced) make calculating buybacks too complicated and subject to manipulation on both sides.

As a question, is sample canola (or #3 for that matter) a deliverable grade under most DDC contracts? Given the CWB is not a participant in world or domestic feed markets, what the CWB should do is make feed wheat a non deliverable grade.

[TOM4CWB]

Charlie;

YES SAMPLE canola was a big part of what I delivered to my DDC's in 02...

ANd as I pointed out earlier... the CWB can get over $180/t... for my feed wheat... in central Alberta... while paying me $70/t...

Over 100 dollars per tonne is a little excessive for a profit, isn't it Charlie?

Can you show me any other open market crop that even comes close to this type of extortion?