Spring Price Endorsement - Alberta Crop Insurance

[TOM4CWB]

Charlie;

The PPO verses PRO prices, on the Day the PRO is announced were as follows;

This is for the 02-03 crop year for 1CWRS 13.5, using CWB CWRS Mar. 03 CWB futures off the CWB Web site;

July 25th PRO $228/t

July 25th Mar 03 futures, $222.13
July Basis Mar 03, $2.57/t positive

Total FPC payment if priced July 25th, $224.70/t


Sept 26th PRO $308/t

Sept 26th Mar 03 futures, $285.42/t
July Basis Mar 03, $2.57/t positive

Total FPC payment if priced Sept 26th, $287.99/t


Oct 24th PRO $312/t

Oct 24th Mar 03 futures, $278.95/t
July Basis Mar 03, $2.57/t positive

Total FPC payment if priced Oct 24th, $281.52/t


Let us look at what happened this 01-02 crop year (remembering the CWB made almost $26/t) for 1CWRS 13.5, using Mar. 03 futures;

July 26th PRO $225/t
July 26th Mar 03 futures, $198.79
July Basis Mar 03, $11.31/t positive

Sept 27th PRO $206/t
Sept 27th Mar 03 futures, $187.92/t
July Basis Mar 03, $11.31/t positive

FPC Total of $199.23/t

Oct 25th PRO $209/t
Oct 25th Mar 03 futures, $189.62/t
July Basis Mar 03, $11.31/t positive

FPC Total of $200.93/t

I have extended the 01-02 performance report to show the lower PPO bias to PRO Basis;

Jan 02 PRO $212/t
Jan 02 Mar 02 futures, same day, $177.83/t

FPC Total of $189.14/t

Feb 02 PRO $213/t
Feb 02 Mar 02 futures, same day, $171.54/t

FPC Total of $182.85/t


THe point here is that on Oct. 24th 2002, the PPO contract yielded $30/t less than the PRO that day... when based off the end of July basis.

I hope this clarifies what I was getting at in the above entry!

[TOM4CWB]

I see I made a mistake on the following 01-02 futures month;

I wrote;

Sept 27th PRO $206/t
Sept 27th Mar 03 futures, $187.92/t
July Basis Mar 03, $11.31/t positive

FPC Total of $199.23/t

Should have been March 02, not 03.

[TOM4CWB]

Charlie;

I note the CWB really cooked the books on the PRO... this summer... as they usually sell grain right up till OCT/NOV. after the July 31st year end, 1.234mmt for the 2000-01 crop year.

This year they just deemed a price... and sold the 2.137mmt into the 2002-03 pool... pretty trickey eh...

AS far as I can figure... the CWB did this to offset the early hedging of the 2002-03 crop... so the fall 2002 PRO would look good during the Director Elections!

With this kind of CWB manipulation of the market place possible, I don't understand how you folks can project anything that will happen!

Just sit and stare at Page 56, of the 2001-02 CWB annual report... on the wheat pool... and see how the CWB manipulated PRO's from year to year... by changing carry over stocks and deeming sales... or selling at market price...

The contingency fund page is page 48, I guess I didn't enlarge it enough... the 48 looked like 46 the first time!

[charliep]

The fall wheat calculation will be based on the average MGE December contract wheat futures price adjusted to Canadian dollars/bu during the month of October and adjusted for a basis. The base wheat is 2CWRS 11.5 and is based on the average price minus $45/t. Other wheats will be adjusted for the spreads used in the October PRO.

[TOM4CWB]

Charlie;

You said "adjusted for a basis"...

What Basis are you going to use?

... PPO Basis from the last offer in July 03, PRO Basis in SEPT/OCT 03... there are as many CWB basis calculations possible as Carter has liver pills!

We need to know, for a risk management strategy to work!

[charliep]

$45/t is the standard basis for low protein 2 CWRS. All the remainder will be off the spreads used in the Oct. PRO. This should be detailed in the information in your crop insurance information package.

[TOM4CWB]

Charlie;

TO be clear, the CWB October PRO may have a basis $20-40/t better than the CWB PPO Fixed Price or Basis Price Contract today.

THIS is the problem with calculating a price using today's CWB PPO contracts!

I know a number of farmers who are being sucked into believing that today's PRO/PPO contacts mean that the Spring Price Contract is already in force.

This, if examined closely... IMHO is false.

What do you say Charlie?

[TOM4CWB]

Charlie;

If you load the CWB electronic Financials for 2001-02, the page numbers on the printed document do not match the readout on the Adobe reader at the bottom... this is quite confusing!

[charliep]

Yes. The October PRO will be different (either positive or negative) from the average price used in the 2CWRS 11.5 CI prices depending on where the actual basis (I hate to use this term as is really not a basis but rather an adjustment to reflect a pooled price). Given the changes in the CWB fixed price/basis contracts, there should be less basis risk for both farmers and this program. The other assumption (hopefully right) is that western Canada will have a more normal crop and from there, a return to a larger/normal distribution between ports and customers (less basis risk).

The objective is to have a more visible process for crop insurance prices. This past year is a hybrid and perhaps why some of the anamolies are occurring (particularly on wheat).

[TOM4CWB]

Charlie;

I have not seen why exactly there should be less basis risk, can you please explain why this is so?

Chairman Ritter said a major change in the PPO contracts was that the PPO contracted price could be higher than the PRO. This was the case when I priced on July 24th, 2002.

The PRO on CWRS #1 13.5 was $201/t, the Fixed Price Contract was $235/t, and on a #1 CPS Red the PRO was $172/t, while the Fixed Price Contract was $198/t.

WHen I brought this to the attention of Chairman Ritter... his comment was simply, "You should be happy then".

This is why I fail to understand how the "new" PPO's are any different from last year!

I sure hope you have an answer that can show how exactly CWB changes will make the Basis more stable!