September Canadian Wheat Board PRO Released Today (Sept. 25)

[charliep]

Will note the PRO is released today. See below.

Quote - "Pool Return Outlooks
2008-09 crop year
DATE: September 25, 2008
Wheat, Durum and Barley Values Decline in CWB 2008-09 PRO
Winnipeg -- The CWB today released its September Pool Return Outlook (PRO) for the 2008-09 crop year. Wheat values declined between $27 and $31 from the August PRO, while durum values are down between $5 and $31. Feed barley is down $23 and designated barley declined $13 from the mid-September PRO.


The global grain trade is closely linked to international financial markets for currency, credit, and other commodities. Recent extraordinary events are creating high levels of volatility and uncertainty in all markets. These events are also having a negative impact on global economic growth and are changing the buying behaviour of grain customers. These conditions are expected to take some time to stabilize and have the potential to significantly impact overall pool returns." End quote.

Comments?

Question?

When a farmer looks at the CWB pool return outlook, is this a legitimate forecast or a value the CWB feels comfortable as a base for the producer payment options? Why are there mid month releases in times of significant price movements - particularly when PRO values are the basis for the PPOs?

Will be interesting to see what happens to basis levels in the fixed price/basis contracts (shouldn' be much) as well as the premiums deducted under the early payment option (should be a reduction).

[charliep]

To generate discussion, I would suggest getting rid of the CWB pool return outlooks altogether. They have outlived their usefull life after 16 years and now are misleading. The only market signal the CWB should provide is the daily payment offer - the amount of money the CWB will pay on delivery (or I should say 10 working days after).

[agstar77]

Aren't all the anti- CWB people asking for more market signals? What about all the transparency that is talked about?

[charliep]

Is the PRO a market signal today or a hedgeable value the CWB can manage risk around? If it is a marker signal, why isn't it recalculated more often during times of market volatility?

[charliep]

To ask further, which is a truer market signal? A 1CWRS 13.5 protein PRO of $331/tonne (basis if I can call it that of $30/tonne over the Dec., Mar, May and July futures). Or the Sept. 25 FPC of $296/tonne or a basis of $10 under the Dec. I will note there is a $35/tonne difference between the PRO and the FPC. How much is because of a more aggressive forecast than the current market? How much is cost of managing CWB pooling risk? Is there any chance a weaker basis could be used to add money into the contingency fund?

On the good side, will note most of the $27/tonne PRO decline came out of the EPO premium (100 % anyway). $42.50 today versus $72.50 yesterday.

[charliep]

Error alert. 100 % epo $46/tonne today (not $42.50).

[chaffmeister]

Agstar - yes, some of us are indeed asking for better price signals - because the PROs suck at it. Charlie said it well - they've outlived their usefulness (actually, that happened about 16 years ago...)

The PRO offers no transparency when they are manipulated they way they are. They are not an indication of the market - rather, they are an indication of what the CWB wants to tell you.

The fact that they went down this much now should tell you that there's much more to come. But in reality, who knows?

[charliep]

Perhaps interesting to know how the PRO is
calculated.

1) Determine the amount and value of wheat and
barley already sold/deposited in the pool accounts.

2) Review the CWB sales plan to determine the
likely destination and basis for wheat and barley
yet to be sold based on forecast deliveries.

3) Forecast expected futures and cash prices for
wheat and barley to the end of the crop year.
Given these prices and payment forecasts are the
backbone of the PPOs, they would have to stay
relatively close to the market at the time of the
monthly PRO calculation.

4) Forecast/estimate the likely class, grades and
protein spreads based on the entire year. This is
perhaps the most interesting but the least
understood of the pooling elements by farmers.

5) Plug all this information into a monster
spreadsheet.

I have no reason to doubt the PRO given what it is
- an expert opinion on a given. It is done
internally by the CWB staff. There is no due
diligence to review process or accuracy. Its shelf
life (like most forecasts) is about a day in the first
5 months and then markets will have changed.
Later in the crop year when more sales are made,
the forecast (perhaps estimate at this point) will be
more accurate.

[btjadenlepp]

agstar that's not fair to call people who ask for more transparency 'anti-cwb'. i consider it a hurtful character attack that is especially misleading considering our goals at farmlink are very similar to the stated goals of the cwb - to help western canadian farmers make as much money as possible.

we have a lot of friends who work at the board, and a great deal of respect for the efforts of those who sincerely care about this mandate. not so much for those who use petty arguments and bad math to push their self-serving philosophies.

[btjadenlepp]

back to the topic at hand. funny thing i had this exact conversation with some trader friends last night: why put a pro out anyway? there is absolutly nothing we can do but look at it and wonder. i totally agree it's doing more damage than good these days.

if you don't agree, consider that the fpc and epo have essentially been posted at the same level. that tells us there is one price that the cwb is willing to pay farmers for their crop on a given day. with all due respect to the analysts and forecasters who come up with the pro, that cash price is far better for planning and risk management.

and (here's where i'm going to get in trouble but hey we all need a distraction from the markets today) the big discount in the cash prices to the pro really, really, really looks bad.

especially when the pro is useless to us in managing risk.

and especially during a director election.

[charliep]

Agree with the above. Will note from the CWB's own survey, 56 % of farmers of prairie farmers want a dual market for wheat. I suspect they are not anti wheat board but rather wanting alternatives. Do the current producer payment options meet these farmers business needs?

If Agstar77 wants to make the claim that the current PRO is a market signal, how do they stack the fact the PRO generally lagged US elevator bids as presented in the page 6 graph of the aug./sept. Grainmatters? What would happen is the CWB put a column in for the 2007/08 daily price contract (now dead). What would happen is a column was included for the fixed price contract (monthly average)?

[charliep]

Got Alberta and western Canada mixed up. 56 % Alberta. 45 % % western Canada.

[agstar77]

BLep , you have forgotten your venn diagrams, I said Anti CWB on this site want more transparency, not all people who want transparency are Anti CWB.

[furrowtickler]

Again we will sit and wait this one out to. Less than 1/2 of the HRSW will be a #1 in Western Canada. #1 mid to high protien wheat should go up in value in time once the market(CWB) figure it out. Feb - March. Alot of 2-3-feed wheat commin off now. Also alot of the total wheat acres were Winter wheat, Ac Andrew, CPS wheat. Again, time to sit at the poker table to see who blinks first.
Off of wheat, I like the comment in Webers report that alot of canola is sitting with price options on it, hopefully that sends a signal to the market that they will not steal this canola crop. Get the harvest off safely then enjoy the family, let everone else sweat it out for a while, it's our turn.