PPO's whose at risk and who is entitled to surpluses

[craig]

I wanted to open this up for debate because it highlights what I perceive is a problem. Producers who use FPC's and DPC's are at basis risk until they lock basis in. Then that risk is past onto someone or something else.Just who or what is that? Operating these programs has created surpluses which has built a large contingency fund. Can anyone lay claim to this fund based on risk or contributions made. Lastly does the operation of these programs treat evryone equally?

[JohnKenneth]

"Producers who use FPC's and DPC's are at basis risk until they lock basis in."

Not sure what you mean here. once an FPC is fixed it's fixed, unless you're referring to the Basis Contract that is not a basis contract but a pricing tool that lets you fix the futures now and the basis later. I'm guessing that's what you mean, i.e. we have basis risk for 2007/08 in taking the new-crop 'Basis' contract.

"Then that risk is past onto someone or something else.Just who or what is that?"

Pretty sure the CWB hedges this stuff internally very carefully, but all i know for certain is that before Aug. 1, adjustment-factor-start-day, they sell futures against every farmer fpc, to protect against the risk that they end up selling at a lower price than they are on the hook for to the farmer.

But that little tidbit doesn't come close to answering your question. it's just the reason for the big overage in the contingency fund that got dumped into the pools in 2004/05, as in:

"Operating these programs has created surpluses which has built a large contingency fund."

"Can anyone lay claim to this fund based on risk or contributions made.

Wouldn't that be an interesting new lawsuit to launch. there really isn't enough money being transferred from board grain farmers to the legal community these days. tom, got some free cash and time on your hands to tackle this one? as someone who carried an open basis contract from oct 31/04 to july 30/05, only to price it out at a discount to the pro, AND THEN FIND OUT THAT THE F-ING PRO WAS PADDED WITH MY OWN FORFEITED 'BASIS' MONEY - i might have some time and energy to contribute to the cause.

"Lastly does the operation of these programs treat evryone equally?"

I doubt it in terms of pool/ppo risk management practices overall, but in the here and now there is a huge related inequality play that's been making a lot of us some good money this fall. presumably i'm not the only one on this forum that has noticed, or been told by a hired high-priced marketing guru, that applying deliveries of 1-15.5% to fpcs locks in the current initial payment premium (~$30/t over 13.5 pro), which is likely to net $20-25/t more than applying those deliveries to the pool, or to later delivery calls? who is paying for this non-marketplace-justified premium?

don't get me wrong, as long as i get it i'm happy, especially considering it's the result of my own investment in marketing education, research and analysis, which i don't particularly feel like sharing with the guys down the road who don't ever bother working to find a better price. but it's not exactly consistent with the whole policy of equalizing opportunities and it's totally relevant to the question of 'who pays for these things'? if the market is only showing $4-8/t premium for 15.5 over 13.5 protein cwrs, according to the current pro and my own area reps comments, who pays for me to lock in $30/t premium today?

this whole notion of fairness through cwb marketing is hilarious. the more they try to change (within the monopoly), the more of these loopholes appear and the more ridiculous it all appears compared to normal commodity crop pricing.

this 'opportunity' ends up totally justifying the $4/ac i pay my marketing advisor, but even she says it's unfair, AND that her fees would go down if board grain marketing were simpler. cripes!

[craig]

John Kenneth Your lucky if you've been able to deliver your high protien wheat. My elevator manager is talking february for delivery on #1.The only reason I brought up the basis risk is to point out that when you talk to the board they almost imply they are taking the risk (when you lock basis)so they should be able to do what they want with the surplus. I was hoping that someone would clue into the fact that those in the pool accounts take no risk in these transactions but if the new manage the pool account proposal comes into effect they will likely profit. Which leads to the question of what portion of the surplus comes from changing basis and what comes from overcharging basis in the first place.I can't help but feel that the board lets us take all the risk in these tranactions,while allowing the board to profit handsomely from the futures market and in turn uses the surplus to pad their marketing.