PPO's

[dfarms11]

anyone using any of the PPO's now? Which one does anybody think is worth using? Right now Fixed Price is $7.41 and the 80% EPO is a $0.66 discount. Neither one is very good in my eyes but might be forced to choose one. Any ideas out there?

[bucket]

start calling your mp and telling him/her to do what they said they would do. Offer marketing choice so the US prices would move into Canada. Even if we took a par dollar scenerio we would get more money.

[Kodiak]

I am loath to leave anything in the pools. I am also loath to participate in the PPO's.

So my approach to wheat marketing for the last 4 years has been to crystalize my CWB lumps all at once by using BPC's. Trying to pick a good time to lock in a basis has been a bit hit and miss. However once I've done it, the CWB's effect on my price is behind me. They essentially have no more influence over the returns I realize. I can then concentrate my efforts on picking selling opportunities as they arise in the marketplace, as reflected on the MGEX. I trust the open price discovery system (as flawed as it is LWeber) in Minneapolis much more than the CWB. At the MGEX there is at least some transparency, while at the CWB everything goes on inside a black box, and farmers are vulnerable to the arbitrary and/or inept actions of the CWB.

For what its worth, now may actually be a good time to lock in a CWB basis. Futures prices are at the low end of the recent price range and the market could be close to achieving some stability or even rallying. I believe there is a risk the CWB basis could worsen from here.

I have chosen a July basis this year, as for the first time in a while I do not see an inverse developing. In previous years choosing January or March was a better strategy which allowed me to capture the basis gains when I rolled. The other reason for choosing July this time, is it buys more time for market stability to develop and for a rally to take shape. Today's low prices will be cured, and a July MGEX futures contract can present opportunities. The July contract can sometimes can be influenced by new crop fundamentals in hard spring and spill over from the winter wheat markets.

[dfarms11]

OK, a few questions.

Does a wheat basis contract work the same as a canola basis contract? Just pick your basis and futures price and there you have your price?

What is a roll over? Is this something you have to do?

Do I need a broker or is this all priced by phoning the CWB?

Right now the basis is $-21.71 with an $8.00 adjustment = $-13.71 net basis, has a basis ever been better? What factors would make it better/ worse?

Sorry for all the questions, just trying to figure this out.

[dfarms11]

Lets say I don't price my basis contract untill june. Does the grain I deliver today, just get paid out with the pool pricing for now and then when I price my contract in june I would settle my previous delivery with my contract? Hope that makes sense!

[charliep]

MY SHOT AT THE ANSWERS.

Does a wheat basis contract work the same as a
canola basis contract? Just pick your basis and
futures price and there you have your price?

YES AND NO. MECHANICS YOU DESCRIBE IS
SOMEWHAT SIMILAR BUT THEIR ARE MAJOR
DIFFERENCES. CANOLA BASIS IS THE DIFFERENCE
BETWEEN A FUTURES MONTH AND A LOCAL CASH
PRICE. NOT QUITE SO SIMPLE IN THE REAL WORLD
AND YOU FEEL IT THESE DAYS IN TERMS OF WEAK
BASIS LEVEL. A MAIN HIGHLIGHT IS THAT CANOLA
BASIS IS RELATED TO WHAT EXPORTERS/CRUSHERS
ARE PAYING AND WHAT FARMERS RECEIVING ON A
TRANSACTION BASIS.

IN THE CASE OF FIXED PRICE CONTRACTS, THE
FUTURES SIDE YOU LOCK IS RELATED TO A
CONVERTED US FUTURES MARKET. THE BASIS,
HOWEVER, IS NOT RELATED TO ANY INDIVIDUAL
WHEAT SALE BUT RATHER TO THE CWB FORECAST
TOTAL WHEAT PAYMENTS. THE FORECAST TOTAL
ARE BOTH EXISTING SALES (THUS THE LATE SIGN
UP ADJUSTMENT) AND ANTICIPATED SALES. THE
CWB OPERATES A RISK MANAGEMENT PROGRAM
TO ENSURE THERE IS NO IMPACT ON THE POOL
WITH THE COSTS PAID BY INDIVIDUALS WHO USE
THE PPO PROGRAM. WON'T GO FURTHER - MY
CWB FRIENDS CAN HELP OUT CAUSE I GET TIRED
OF CARRYING THEIR LOAD WHILE THEY PLAY IN
THE WORLD OF POLITICAL COMMENTARY.

What is a roll over? Is this something you have to
do? A ROLL IS CHANGING THE FUTURES MONTH
YOU WANT TO USE. EXAMPLE - YOU SIGNED A
DECEMBER CONTRACT BUT WOULD LIKE TO SHIFT
THE CONTRACT UNTIL JULY (THINK THE MARKET
WILL MOVE HIGHER). THERE IS AN
ADMINISTRATION PLUS ANY CHANGE IN FUTURES
SPREADS - NOT 100 % SURE HOW BASIS ONLY
CONTRACTS ARE HANDLED. YOU DON'T HAVE TO
ROLL UNLESS YOU FEEL WORKS INTO YOUR
MARKETING. HAVING SAID THAT, YOU NEED TO BE
AWARE OF THE DEADLINES FOR EACH CONTRACT
MONTH.

Do I need a broker or is this all priced by phoning
the CWB?
NO. EPERMIT (ONE CLICK AS TIMM HAS
INDICATED, FAX, ETC).

Right now the basis is $-21.71 with an $8.00
adjustment = $-13.71 net basis, has a basis ever
been better? What factors would make it better/
worse? I HAVEN'T FOLLOWED THE JULY
CONTRACT. LOOK AT HISTORICAL CHARTS ON
THE CWB WEBSITE. WON'T PUT IN THE LINK BUT
RATHER TELL YOU HAVE TO GET THERE.

WWW.CWB.CA

RIGHT HAND SIDE - CLICK ON THE LINK FOR FIXED
PRICE/BASIS CONTRACTS.

ONCE THERE, LOOK DOWN THE LEFT SIDE AND
YOU WILL SEE HISTORICAL CHARTS. CLICK IT.
YOU WILL SEE JULY CONTRACTS FOR CURRENT
YEAR AS WELL AS THE PREVIOUS 7 THAT PPOS
HAVE BEEN IN EXISTENCE. YOU CAN DRAW YOU
OWN CONCLUSIONS AFTER LOOKING AT THEM.

[charliep]

Lets say I don't price my basis contract untill june.
Does the grain I deliver today, just get paid out
with the pool pricing for now and then when I
price my contract in june I would settle my
previous delivery with my contract? Hope that
makes sense!


FIRST, I WILL NOTE YOU HAVE TO HAVE A JULY
CONTRACT. A DECEMBER CONTRACT WILL BE
PRICED OUT ON NOVEMBER, MARCH IN FEBRUARY,
MAY IN APRIL.

FROM WHAT I KNOW, YOU CAN HOLD OFF PRICING
OUT A JULY CONTRACT TILL THIS WINTER/SPRING
EVEN THOUGH YOU HAVE DELIVERED NOW. A CWB
FARM BUSINESS REP, GRAIN COMPANY REP, MAYBE
ME AFTER READING CAN GO OVER THE EXACT
RULES. ISSUES HOWEVER ARE YOU DON'T HAVE
THE MONEY IN YOUR BANK/WORKING FOR YOU
(WOULD RATHER PRICE OUT AND USE SOME OTHER
ALTERNATIVES TO SPECULATE ON HIGHER PRICES).
YOU ARE ALSO AT FULL RISK ON THE FUTURES
MARKET AND THE POTENTIAL FOR NEW CROP/JULY
2009 TO SLIP INTO AN INVERSE. FINALLY NOTE
THE SITUATION FROM THIS PAST YEAR WHERE
CONTRACT VALUES SLIPPED BELOW ADJUSTE
INITIAL PAYMENTS AND SOME FARMERS HAD THE
CWB AFTER THEM TO PAY BACK MONEY.

[charliep]

ONE THING I FORGOT IS YOU NEED TO BE AWARE
OF INITIAL PAYMENT SPREAD RISK. YOU GET PAID
FOR THE CLASS, GRADE AND PROTEIN ON THE DAY
YOU DELIVER YOUR WHEAT BASED ON THE INITIAL
PAYMENT IN EFFECT. YOUR FPC, HOWEVER, IS
BASED ON THE DIFFERENCE BETWEEN YOUR
CONTRACT VALUE FOR THE BASE GRADE ON THE
DAY YOU SIGNED AND THE INITIAL PAYMENT ON
THE DAY YOU TELL THE CWB YOU WANT TO APPLY
THE CONTRACT . I DON'T WANT TO GET
COMPLICATED BUT THIS WILL IMPACT THE
SUCCESS OF THE FPC (PARTICULARLY FOR BASIS
ONLY). AN EXAMPLE IS ALL THREE SUBCLASSES OF
WHEAT USE DIFFERENT FUTURES MARKETS -
CWRS/CWHW/CWES IS MINNEAPOLIS, CPS/CWRW IS
KANSAS, SWS IS CHICAGO - SO CHANGES IN THE
RELATIONSHIPS BETWEEN THESE MARKET WILL
IMPACT THE FPC SIDE AND ADJUSTED INITIAL
PAYMENTS ARE AT THE WHIM OF THE FEDERAL
GOVERNMENT/CWB. THIS CAN HAVE SOME WEIRD
AND EXPENSIVE/BENEFICIAL IMPACT ON YOUR FPC
PRICING RELATIVE TO OBJECTIVES.

NONE OF THE CWB PROGRAMS ARE A MARKET
SIGNAL IN ANY WAY SHAPE OR FORM.

[dfarms11]

Thanks for your comments Charlie. I do understand that cwb basis is totally different from a canola basis. I guess this is why I really need to get myself enrolled into a marketing course this winter so I can learn all of these marketing options.

[timm]

Why worry so much about basis when futures moves r so large charli

[charliep]

I suspect you have answered your own question in other threads.

Apologise for the curling (am back at it for the winter) but there are lots of times you position rocks to be use later on.

Basis levels (after you have included the late signup adjustment factor) have varied from $2 under for hard red spring wheat (mid Oct.) to $30 under (first release PRO/FPC). A farmer easily could have added on $15 to $20/tonne by paying attention to FPC basis. That is $700 on "B" train - maybe small change to a farmer but my experience is that most successful farmers find an extra $700 everywhere they can.

I note that if you haven't signed a flexpro contract, your only opportunity to hold an outside the pooling full payment alternative open is a basis contract. You have no choice. This is the reason close to 90 % of farmers who signed fpc in 2007/08 priced under $7/bu (see the CWB year end presentation).

The issue raised initially by dfarms11 was what is a good basis. You notice that I ducked this one because after 8 years of watching these programs, I don't know what a good CWB basis is - particularly on CWRS/CWHW/CWES. Maybe you can help him.

You might also comment on the flexpro. The flexpro to date has been the fixed price contract with the late payment adjustment factor - not a good thing is a falling market/positive adjustment and by any measure a poor replacement for the daily price contract which reflected US prices - the reason the program was the inability for the CWB to manage risk. If I were someone who signed one of these contracts (200,000 tonnes volume in total ), I would feel like I had been violated in a very personal way (others will have different terminology). What cash payment/relationship with futures or the PRO can farmers who signed a flexpro contract (perhaps on my advice? In a non competitive/beauracraticly established value, how can a farmer know if this is fair price?

[charliep]

last paragraph - flexpro is a fixed price contract WITHOUT THE LATE PAYMENT ADJUSTMENT FACTOR.

I also note my comments on the the CWB inability to put out mid month PRO for wheat. I get real crabby every month when I see the mid barley PRO published for political reasons and nothing on wheat in the current fast moving market when there are good market signal reason (i.e. a strong business case). As I have said in the past, the CWB needs to change programs in the current environment - particularly in the case of EPO contracts.

[charliep]

dfarms11

To put in a plug for the CWB (not always nasty), you might want to talk to one of the CWB farm business representatives about some training opportunities they are likely to have over the winter. They have developed a piece of software that demonstrates how the different producer payment options work and can be applied to an individual farm business situation.

[timm]

The flexpro might look pretty good next spring in a rising market...a one day futures move could be as much as the entire basis...then get the blackberry curve out and push the button

[Hopperbin]

Might is a big word. Flex Pro SWSW wheat is in my location 3.8 dollars per bushel net to producer is not an incentive to price when 1.2 dollars under local feed mill. Timm are you locked in flex pro?