Dear Charlie,
This is quite a packet of excuses... everything has gone the CWB's way... Currency... Ocean Freight... and this is the result?
Boy are we suckers!
Copied off the CWB web site:
"October 2008-09
Wheat PRO values decreased this month. Basis levels are mixed: while the CWRS, CWHW and CWES December basis are more negative, the basis for the other months has improved. Basis levels for CWRW, CPSR, CPSW and CWSWS have improved since the last PRO.
PRO day values - No. 1 CWRS 13.5
PRO FPC December Basis December Futures Adjustment Factor
October PRO $307 $270.96 ($17.29) $279.50 $8.75
September PRO $331 $296.34 ($15.04) $305.63 $5.75
Change ($24) ($25.38) ($2.25) ($26.13) $3.00
Basis levels for other futures months
March May July
October PRO ($15.91) ($18.91) ($21.68)
September PRO ($19.50)($22.72)($24.05)
Change $3.59 $3.81 $2.37
Recent developments:
Ocean freight rates have dropped dramatically, which will improve the competitiveness of Canadian wheat in some markets. However, it also allows competitive suppliers to expand their range of markets, which will lead to increased international competition.
While FOB prices into markets where the competition is non U.S.-origin have declined over the past month, this decline has generally been less than the change in U.S. market values. This has a positive impact on basis levels.
A weaker Canadian dollar results in a higher Canadian dollar return from U.S. dollar sales. However, this is partially offset by an increase in costs.
Decreasing carry in a futures market results in a comparatively weaker December basis and a comparatively stronger basis for later months. At the time of the September PRO the December - March Minneapolis futures spread was at a $4.46 Cdn carry. On October 23, this spread was at a $1.38 Cdn per tonne inverse.
Stats Canada has increased the size of the Canadian crop.
Expectations for 2008-09 world wheat production increased again. USDA increased world wheat production by four million tonnes (MT) to 680 MT. While the outlook for world supplies of high quality and high protein wheat appears relatively tighter, increased North American production has reduced the tightness.
The CWB expects to sell more wheat into markets where the U.S. is not the primary competition.
Important world market factors:
Western Canadian wheat competes against grain from a number of different origins. While the U.S. is an important competitor in many markets, it is not our only competitor and often it is not a relevant competitor. When comparing relative price structures it is also important to note that a much larger proportion of U.S. wheat production is consumed domestically than is the case with western Canadian wheat.
World wheat production will be up: the USDA estimate is 680.2 MT, compared to 610.8 MT in the last marketing year. Overall production increases have been skewed towards softer wheat particularly in the EU and Black Sea. While the outlook for world supplies of high quality and high protein wheat appears relatively tighter, increased North American production has reduced the tightness.
We are in a world market and currently a number of external economic factors have increased risk. For example, in past weeks there have been days where a drop in the previous Asian overnight or the EU markets have been the driver for the North American equity markets, which then are linked with the downward drive of the commodity markets that day.
The U.S. futures markets have been affected by the degree of speculative participation and the uncertainty concerning their continued involvement. Both consumers and investors have less money, and this will reduce consumption and investment activity. One result of this turmoil has been significant declines in world equity markets. The dramatic increase in redemptions by investors in speculative funds, and a reduction in speculative investment in commodity markets, has removed that support in the markets.
A big concern in the market is the availability of credit - overnight lending rates (libor) are only recently settling down suggesting that inter-bank lending has become more liquid. The impact on demand is difficult to assess at this time.
The U.S. futures price structure is not fully reflective of overall world wheat values. In particular, the U.S. wheat futures markets continue to exhibit a much higher degree of volatility with poor correlations to tradable flat prices in the rest of the world. While these are the best risk management tools available for CWB use, they are an imperfect reflection of world wheat markets in aggregate.
Commodity markets continue to exhibit high volatility. According to the CME Group (CBOT), for the month of September 2008, the historic wheat futures volatility for Chicago Wheat has been 50.8%, with year to date historic volatility running 50.5%. From 2000 to 2007, the highest observed monthly historic wheat volatility was 45.8%, and the highest yearly historic volatility was 32.7%.
Back to top
Basis
The basis on a CWB BPC is the difference between the FPC and the specific futures contract used in the BPC.
BPC Basis = FPC – relevant futures price
The BPC basis level is influenced by many of the same factors that influence other basis levels including the reference to a relevant futures price, margins for risk, financing costs, administration costs, etc.
A significant difference between the BPC basis and other types of basis such as a U.S. spot basis, is the match between the delivery period and the specific futures maturity. Because the CWB accepts deliveries and markets grain for a full pool year, the FPC is based on prices projected to be available until the close of the pool year. This results in an FPC price that includes the impact of the current carry or inverse in the market. As a result, the basis level against a specific futures maturity is also affected by the market structure of the remaining marketing year.
The most regular source of daily variation in the BPC Basis relates to changes in the overall futures market structure. If the difference in futures values are such that there is a positive gain in the futures price between two successive delivery months, then a “carry” exists in the market, conversely if the price declines then an “inverse” exists in the market.
If the change in the overall futures structure is such that the carry becomes larger, then the BPC basis will become more positive to farmers. If the change in futures structure is such that the carry becomes smaller or an inverse develops, then the change in the BPC basis is such that it becomes less positive.
As other market factors change, the daily BPC basis value will be adjusted to incorporate them."
Double speak for cash pricers pay all the time... every time... for any excuse the CWB can think of to charge more!
CWB's claim to "Maximise my returns"? NO they MINIMISE my returns.
This is quite a packet of excuses... everything has gone the CWB's way... Currency... Ocean Freight... and this is the result?
Boy are we suckers!
Copied off the CWB web site:
"October 2008-09
Wheat PRO values decreased this month. Basis levels are mixed: while the CWRS, CWHW and CWES December basis are more negative, the basis for the other months has improved. Basis levels for CWRW, CPSR, CPSW and CWSWS have improved since the last PRO.
PRO day values - No. 1 CWRS 13.5
PRO FPC December Basis December Futures Adjustment Factor
October PRO $307 $270.96 ($17.29) $279.50 $8.75
September PRO $331 $296.34 ($15.04) $305.63 $5.75
Change ($24) ($25.38) ($2.25) ($26.13) $3.00
Basis levels for other futures months
March May July
October PRO ($15.91) ($18.91) ($21.68)
September PRO ($19.50)($22.72)($24.05)
Change $3.59 $3.81 $2.37
Recent developments:
Ocean freight rates have dropped dramatically, which will improve the competitiveness of Canadian wheat in some markets. However, it also allows competitive suppliers to expand their range of markets, which will lead to increased international competition.
While FOB prices into markets where the competition is non U.S.-origin have declined over the past month, this decline has generally been less than the change in U.S. market values. This has a positive impact on basis levels.
A weaker Canadian dollar results in a higher Canadian dollar return from U.S. dollar sales. However, this is partially offset by an increase in costs.
Decreasing carry in a futures market results in a comparatively weaker December basis and a comparatively stronger basis for later months. At the time of the September PRO the December - March Minneapolis futures spread was at a $4.46 Cdn carry. On October 23, this spread was at a $1.38 Cdn per tonne inverse.
Stats Canada has increased the size of the Canadian crop.
Expectations for 2008-09 world wheat production increased again. USDA increased world wheat production by four million tonnes (MT) to 680 MT. While the outlook for world supplies of high quality and high protein wheat appears relatively tighter, increased North American production has reduced the tightness.
The CWB expects to sell more wheat into markets where the U.S. is not the primary competition.
Important world market factors:
Western Canadian wheat competes against grain from a number of different origins. While the U.S. is an important competitor in many markets, it is not our only competitor and often it is not a relevant competitor. When comparing relative price structures it is also important to note that a much larger proportion of U.S. wheat production is consumed domestically than is the case with western Canadian wheat.
World wheat production will be up: the USDA estimate is 680.2 MT, compared to 610.8 MT in the last marketing year. Overall production increases have been skewed towards softer wheat particularly in the EU and Black Sea. While the outlook for world supplies of high quality and high protein wheat appears relatively tighter, increased North American production has reduced the tightness.
We are in a world market and currently a number of external economic factors have increased risk. For example, in past weeks there have been days where a drop in the previous Asian overnight or the EU markets have been the driver for the North American equity markets, which then are linked with the downward drive of the commodity markets that day.
The U.S. futures markets have been affected by the degree of speculative participation and the uncertainty concerning their continued involvement. Both consumers and investors have less money, and this will reduce consumption and investment activity. One result of this turmoil has been significant declines in world equity markets. The dramatic increase in redemptions by investors in speculative funds, and a reduction in speculative investment in commodity markets, has removed that support in the markets.
A big concern in the market is the availability of credit - overnight lending rates (libor) are only recently settling down suggesting that inter-bank lending has become more liquid. The impact on demand is difficult to assess at this time.
The U.S. futures price structure is not fully reflective of overall world wheat values. In particular, the U.S. wheat futures markets continue to exhibit a much higher degree of volatility with poor correlations to tradable flat prices in the rest of the world. While these are the best risk management tools available for CWB use, they are an imperfect reflection of world wheat markets in aggregate.
Commodity markets continue to exhibit high volatility. According to the CME Group (CBOT), for the month of September 2008, the historic wheat futures volatility for Chicago Wheat has been 50.8%, with year to date historic volatility running 50.5%. From 2000 to 2007, the highest observed monthly historic wheat volatility was 45.8%, and the highest yearly historic volatility was 32.7%.
Back to top
Basis
The basis on a CWB BPC is the difference between the FPC and the specific futures contract used in the BPC.
BPC Basis = FPC – relevant futures price
The BPC basis level is influenced by many of the same factors that influence other basis levels including the reference to a relevant futures price, margins for risk, financing costs, administration costs, etc.
A significant difference between the BPC basis and other types of basis such as a U.S. spot basis, is the match between the delivery period and the specific futures maturity. Because the CWB accepts deliveries and markets grain for a full pool year, the FPC is based on prices projected to be available until the close of the pool year. This results in an FPC price that includes the impact of the current carry or inverse in the market. As a result, the basis level against a specific futures maturity is also affected by the market structure of the remaining marketing year.
The most regular source of daily variation in the BPC Basis relates to changes in the overall futures market structure. If the difference in futures values are such that there is a positive gain in the futures price between two successive delivery months, then a “carry” exists in the market, conversely if the price declines then an “inverse” exists in the market.
If the change in the overall futures structure is such that the carry becomes larger, then the BPC basis will become more positive to farmers. If the change in futures structure is such that the carry becomes smaller or an inverse develops, then the change in the BPC basis is such that it becomes less positive.
As other market factors change, the daily BPC basis value will be adjusted to incorporate them."
Double speak for cash pricers pay all the time... every time... for any excuse the CWB can think of to charge more!
CWB's claim to "Maximise my returns"? NO they MINIMISE my returns.
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