EPO versus FPC versus Flexpro

[charliep]

Will note the fixed price contract for 1CWRS 13.5
yesterday paid $303.38/tonne port ) paid out at
delivery versus a 100 % EPO for the same grain of
$302.25/tonne port with an opportunity to enjoy
higher payments above $358/tonne port. A 90 %
epo for 1CWRS 13.5 puts $288.45 minus CWB
deductions. The flexpro pays out $299.13.



Have stayed out of other threads but will note that
questions about the CWB produced pricing
products and how the CWB manages risk needs to
be noted with emphasis on cost/effectiveness. I
note the CWB own spring 2008 survey highlights
that farmers want choice of risk management
products (a fancy way of saying open market) that
reflect market condition/real traded prices.

[GrainBeetle]

How can the 100 percent epo be almost equal to the fpc? Charlie, this price signal is telling us that;

1:the cwb is confident that the PRO price will rise (or is stable) or

2: that the fpc basis has lots of protection built in.

[charliep]

GrainBeetle

I don't have answers to your questions but they are
very good ones.

Comments (for what they are worth):

I don't think the answer to your question can be
the first one. If the CWB were to do a PRO today, I
suspect it would be down at least $20/tonne
based on the market. It perhaps raises the
frustration as to why CWB market signals are
fourth Thursday of every month occurrence (don't
know what makes this day special) and not
something more frequent or at least is updated
when price changes warrant (similar to malt this
month).

The second question for every farmer here is
whether the PRO is a price forecast or alternatively
a value the CWB can offer in the PPO products and
feel comfortable they can hedge the risk relative to
the overall pool. The CWB should be much cleaner
in keeping these two processes clean - a forecast
is forecast and pricing based on actual sales or a
risk management strategy with the overall pool
completely separated from the forecast. An EPO
would relate to the fpc then - not the inflated
PRO.

Too tired of being a biased Alberta government
guy answering CWB questions (I do read the
editorial section of WP). A CWB supporter can help
me.

[TOM4CWB]

Dear Charlie,

An Interesting aside that the massive EPO charge (over $50/t) shows... is the CWB extra take on basis.

With the 'single desk' the CWB should be able to pass on a reasonable basis to 'designated area' growers.

If the pool is @ $338/t... then the neutral FPC should be within $4/t of this price... according to the CWB's own calculations in the pool discount value daily portion. Remember back... a positive adjustment bringing UP the Flexpro value.

At least there is a transparent indication of how much extra the CWB is taking off.

The CWB present Basis is taking extra $50/t off growers... BECAUSE THERE IS NO 'NEED' TO PAY GROWERS THE TRUE VALUE OF OUR GRAIN.

THERE IS NO QUESTION THE INFORMA STUDY IS low IN HOW MUCH THE CWB IS COSTING... OVER or above A COMPETITIVE SYSTEM THAT FORCES ARBITAGE.

AWB does not even have the authority to export wheat... and the basis they offer on a competitive profit based system... instead of the 'single desk' 0 profit system... is better than the CWB.

There are many ways now to calculate the CWB tookage. US prices... AU prices...

The CWB 'single desk' offers no premium... just extra cost because of BAD RISK MANAGEMENT a competitive system would have prevented!

[charliep]

Perhaps an equally important question is the
amount of money in the PPO contingency after
2007/08 (likely negative) and how the CWB will
bring it back to a more comfortable level (at least
the $65 mln in regulation) in a reasonable number
of years. Risk is that current basis levels are
weaker than normal as the CWB grabs money for
the contingency fund.

Some have raised questions about the relationship
between the PPO contracts/contingency and the
overall pool accounts with regards to money
transfer in risk management activities. Good
questions when they are asked.

[charliep]

Just a note the CWB released a mid month malt barley PRO to let everyone know there is no change in payment forecasts and yet there is no information/guidance provided on wheat when it has dropped $25/tonne since the august 28 PRO. Does that mean the CWB still believes August PRO is realistic? If the market decline impacts payment prospects, shouldn't this information be provided farmers?

[charliep]

I might note my frustration (perhaps similar to what GrainBeetle and Tom4cwb highlighted) is the $55/tonne difference between the PRO (a forecast from August that may or may not be relevant today) and the fpc. Which one of these numbers doesn't make sense? How much fat (another word for tookage) is there in basis and where does the money go?

I note a comment from another thread the CWB board of directors actively designed the producer payment options. I hope this not the case. The B of D should be setting strategic direction and holding the operations side accountable for performance/risk management. The operations side should be the designers and ultimately accountable for results. A $40 mln loss in 2006/07 and potentially a lot more in 2007/08 suggests there is problem. The solution in 2008/09 seems to be weaker basis (farmers money).

[parsley]

IF the B of D imposed a superceding motion, why should they not should be legally responsible for loss occurring?

Parlsey