New DPC

[craig]

It's time for the CWB to step up to the plate with better explanations. They say that the old program involved to much basis risk. They need to explain in more detail and don't ask us to just take their word for it. Next they say that they are consulting farmers in developing the new DPC program. Again give us an explanation of just who are these farmers. The DPC worked well for a lot of farmers and was as close as we could get to American pricing. If it didn't work it is only a sign that the CWB can't offer similar pricing to what American's get in an open market system. Expect DPC#2 to be a waterdowned version that likely offers little more than FPC's. Maybe it's time the CWB gives a little more thought to risk management. Current programs are good at passing all the risks on to farmer's and then also good at skimming the proceeds off into the general revenues. Farmer's want forward pricing and hedging opportunities where someone else is prepared to take a risk position on the other side. Under the CWB that other party is not there.

[TOM4CWB]

Dear Craig,

The real problem here... is the same as for FPC basis issues... the CWB managers will only sell the board grain contracted to them by 'designated area' growers... TO THE CWB POOL ACCOUNTS.

The normal risk management process would complete a sales contract by selling the grain to a third party... be it a grainco (for collection and assembly into larger lots for shipment)or an enduser using the same process.

The CWB uses the 'pool' for collection and assembly into larger lots for shipment)... instead of normal grain selling systems... which of course increases the basis risk to us, as growers.

This lack of flexibility is sales opportunities... is justified because the CWB claims the grainco or enduser can turn around and undercut the CWB by competing with the CWB on a future sale.


While possible... it better explains what the CWB itself does... for with a real and obvious cost of sales (Acquisition) for the grain buyer... the objective of buying the grain in the first place IS TO MAKE A PROFIT. THE CWB selling from the pool does not have the same discipline... because the pool itself (CWB 'designated are' farmers)own the grain... and they cannot see individual price that is being attained (in the name of 'commercial confidentiality).

There is a real and important risk management stabilisation process in effect for the producer in a global sense... the general market in a decline... is buffered... because of this cost of sales disclpline (for the grainco/enduser). BUT NOT FOR THE CWB... because the POOL TAKES THE HIT... not the CWB CORP. THIS IS WHY THE CWB POOL is most often the first to drop... and the fastest to drop... in a declining market for our Board grain. RISK WE MUST ABSORB as growers... with little upside benefit... as the POOL price increases much more slowly.... than it decreases.

[parsley]

The Lethbridge Herald
12 April, 2008
article called "New producer payment option"

with quotes from the writer Ric Swihart and a precis of the rest of the article





The CWB will replace the three year DPC pilot project with a new:
"no-tonnage limit producer payment option for the 2008-09 crop year"


"The new PPO, which is still being developed in consultation with farmers, will not have the same restrictions on tonnage commitment and time frame as the DPC. "

Any Agri-villers out there helping with this?

PPOs are supposed to consider sustainability and accessibility.

CWB terminated the daily price contract at the March board meeting.

The DPC had an operating cap of 650 000 tonnes, 5 000 tonnes/farm: and full on the first day sign-up.


New program has no tonnage limit.


Parsley

[melvill]

I realize I'm sticking my neck out a little here given that we don't know what the details are but this program looks like the Board will be offering a daily cash price all crop-year long. That is something that a lot of producers have been asking for for a long time.

The unknown will be whether tonnage will have to be committed before the crop year begins or whether tonnage will be able to be signed up through out the year. That's the detail I'll be watching for.

The other question will be how disciplined producers are in using it. By discipline I'm referring to the phone calls I've been getting lately from very sad canola growers who have very little old-crop canola priced because they were convinced they would see $20/bu. in the spot cash market.

[Ron]

Melvill, if the basis (of whatever they call it) is directly tied to the US market without any screwing around we should be able to cover our cash sales with minni or kansas wheat calls? Or hedge with a put option before delivery?
If you had told us last year we would be kicking ourselves for selling canola for only $13 we would have scoffed (except for CP).
Anybody know more about the NDPC (New DPC)?

[melvill]

Ron, instead of calling the Board's products "basis" let's do like the cattle people do. Let's call it the "cash-to-cash spread".

Given that there's no obvious way to risk-manage the cash-to-cash spread between Canadian prairie points and a group of U.S. elevators, that'll be the toughest part of the program for the Board to design. Especially given that we can't physically ship all of our western wheat to the U.S., either.

I wish there was a highly visible source of world wheat cash prices that we could "see" how both Canadian and U.S. wheat prices relate to the world market. Now some of you will say we do have that. We have PNW prices and U.S. Gulf prices but I wonder, at certain times, if those spot prices are actually prices that business is actually being done at. Or maybe, in some circumstances, they're prices that wheat trades between terminal operators to meet short-term shipping needs kind of like the Vancouver spot canola price.