CWB EPO's

[TOM4CWB]

Charlie,

Did you notice that the Hard Red and White 100% EPO is $19/t?

THis means that @ $216/t - $19 is $197/t total payment if the Pool price remains at $216/t as the CWB predicts. This is almost a 10% extortion rate.

How can the CWB justify this?

[charliep]

I should get the CWB to start sending me a retainer for answering their questions.

The EPO is effectively an options strategy (in fact this is how the CWB manages their risk relative to pool returns). You are paying for an option with a significant amount of time value. The CWB also adds their risk premium over and above which is part of what got deposited in the contingency fund/overall pool account last year.

As you indicate, the $19/tonne investment is likely a poor one. The better choices.

Do nothing or use a lower coverage EPO (eg. 80%) or cash price using a fixed price contract and take the $19/tonne you would have spent and buy calls at advantageous times during the year. Lots of other strategies that can keep a farmers opportunity to participate in rallies open (with a caveat you will also endure the pain of lower prices if this is market direction.

[melvill]

Oh, and one more thing, Charlie, that the $19 needs to go toward - puts on the Canuck Buck.

[TOM4CWB]

Lee;

You meant "Call" options, didn't you?

If the CDN$ rises... the grain is worth less... later in the crop year; covered by a call option would reduce risk... not a Put.

Or did I miss something?

[melvill]

Yes, you're right, Tom. I've got "put" on the brain or I was just having a blond moment. You take your pick.

Yes, to protect against Cdn$ increase in value, use call options.

Good thing you noticed it.