PRO's.......

[chaffmeister]

lakenheath
Thanks for the answer. According to the CWB's website, the PRO for #1CWRS 13.5 in Feb, Mar and Apr of 2005 (for 05/06) was 192, 195, 194 respectively (compared to the current 201.
What am I missing?

[lakenheath]

Chaff,

Sorry, you are correct. I clicked on the wrong link at CWB website. Anyways, the PRO's are very poor and never improved from last spring. Multiply that with increased fertilizer prices.

[lakenheath]

Chaf, the differnece is when you pencil it in last spring you bank on a #1 grade. Now with all the #3 out there it doesn't pencil out. I know the grades aren't the CWB fault but I'm curious why they keep dropping with the current rally in the States?

[chaffmeister]

Thanks guys – I though I was losing it there for a minute!

From my experience, when the PROs go down while the market goes up, it usually means either (1) the CWB has sold a great deal already at the lower prices or (2) the Canadian dollar has moved against you. Either way, even though the world market rallies, the CWB PROs can’t keep pace.

Here’s the math as I see it on the forex part:

Back in Feb 05, nearby MGEX futures were about $3.45 and the USD was 1.2400 (or thereabouts). This works to about C$157 per tonne; PRO of the day (C$192) equates to about C$35 over MGEX futures (very rough numbers because I’m using monthly prices).

Now it’s Jan 06 and nearby MGEX futures are about $4.00 and the USD is 1.1460. This works to about C$169 – about C$12.00 per tonne higher than in Feb. The PRO is about C$9.00 higher than in Feb in absolute terms but about $32 over MGEX – a drop of C$3.00 in relative terms (from the C$35 over back in Feb).

If we take today’s MGEX futures price and convert to it Cdn dollars per tonne using the same FX rate as in Feb, we get about C$182.00 per tonne – about C$25 higher than Feb’s MGEX price. If there was no change in the CWB’s price in relation to MGEX futures, and the FX rate did not change, the PRO would be C$217.00.

Of course these are real rough numbers – and the PRO is based on more than spot prices and spot FX rates, but seems forex is a big part of the problem.

[Incognito]

Chaff:
Thanks for the breakdown.

When the dollar was 1.24 and 28/28 analysts polled by Bloomberg expect a 1.14 to 1.10 in the following 12 months, would it not be prudent to hedge some of the currency?

The argument that the CWB has used from the time the dollar was 1.60 was that pre-hedging was speculating. In your opinion, when is it fiscally responsible to book the dollar?

[Vader]

Market development, logistics, brand development, and customer relationships are a few of the things that perhaps are areas where the CWB is uniquely qualified to engage.

The CWB has no "special" view on the future of world currency. Since this type of activity can be called speculative and because each individual has different risk tolerances why should the CWB make these decisions for everybody rather than letting them do it for themselves?

Anyone can hedge the dollar given their own personal view and risk tolerance. Go for it!!

[Incognito]

Has that view been communicated to farmers?

That the PRO and the volatility of currency is their responsibility.

It is my understanding that the CWB has a Risk Management team.

If currency has been the biggest risk to grain prices- how are they managing it?

[TOM4CWB]

Vader;

The CWB attitude quoted is exactly what I would expect from those who follow, instead of Lead.

The PRO is sinking.

Growers have placed their trust in your marketing ability and knowledge of the world markets...

The CWB had a obligation to risk manage the pool account; as the CWB alone know what is sold, what is priced on a basis, what is unpriced, and exposures associated with these positions.


My Canola marketer hedges the CDN$ years ahead on my behalf... on a production contract; without a specific volume, only an acreage contracted.

Why should I expect less from the CWB?

[lakenheath]

That is crap Vader. Lets assume a farmer decideds to hedge against currency risk. How can he be assured that if the Cdn dollar devalues that the price offered by the CWB will in fact increase in value?

[chaffmeister]

Quite frankly I’m stunned by your posting Vader. Not that long ago a senior financial department staff member at the CWB told me that the CWB has a “very sophisticated” forex modeling and hedging protocol. I took this to mean the CWB does indeed have a “special view on the future of world currency”. So either he’s wrong or you’re wrong – bottom line is I feel mislead. Which is it? Truthfully.

You make a couple of other important points:

(1) “…this type of activity can be called speculative”. Let’s assume you’re right (although I disagree). Then selling wheat futures in advance of selling cash wheat is also speculative (which I also disagree). But I am told (again by senior CWB staff) that the CWB indeed does sell futures ahead of selling cash grain in order to lock in attractive flat price levels. So, by your definition, the CWB speculates with wheat but not the dollar. Why?

(2) “…because each individual has different risk tolerances why should the CWB make these decisions for everybody rather than letting them do it for themselves”. Well put. If only you could see that this applies to wheat and barley as much as it does to forex.

Oh yeah, one more thing, about your comment saying “Market development, logistics, brand development, and customer relationships are a few of the things that perhaps are areas where the CWB is uniquely qualified to engage”. Please tell me you’re not serious…