$85.4mil Wheat Pool Deficit.

[TOM4CWB]

Charlie;

I heard in the CWB webcast that the CWB sees the 02-03 deficit was unavoidable and perfectly acceptable.

What is your take on CWB 02-03 performance and using the initials as "risk management tool" as the CWB calls the federal gaurentee?

If this is perfectly acceptable, why were the initials set so low in 03-04 and not at historical levels?

[Incognito]

If the media is going to let the CWB off the hook with the currency excuse as a cover for mismanagement, farmers better learn to block highways and roads as they do in Europe.

Quote from the Australian Wheat Board:

Ms Scales said while the Australian dollar had continued to appreciate against the US dollar, AWB National Pool’s currency hedging program was protecting pool value from its full impact.

The CWB lost 12.25 a tonne in the pooling account to currency or the full value of the loss.

The CWB today said they hedged dollars when they sold grain. Any risk management team will tell you if you are using a USD to portray a PRO price, you are at risk when you BUY the grain and when you SELL the grain. My god, its straight econmics.

[Ration-Al]

Incog

What do you mean "Any risk management team will tell you if you are using a USD to portray a PRO price, you are at risk when you BUY the grain and when you SELL the grain. "

Please tell me what risk management tool you would use to manage risk against the fluctuation in our dollar versus the US dollar? Would you buy put or a call option? Would you go long or go short on the dollar? What amount of dollars would it make sense to do this for. Should we expect the CWB to take a position on the upcoming years sales program?

[Incognito]

While options are the cheapest insurance for farmers, forward contracts for foreign exchange is what major grain companies utilize as it is the most cost-effective.

To protect yourself against a rising US Dollar, you buy USD and sell Canadian dollars. Every bank has a foreign exchange desk. There are also private currency exchange houses and brokers that can walk you through your transaction.

Talk to you banker and ask what instruments they offer to protect your grain against a rising dollar. Some banks will let you (yes even farmers) utilize a FOREX contract for as little as $25,000 and charge your operating line between 5-10% of the value of the contract.

Options are the least cost method but since I sell in USD I have available cash to offset the FOREX contract.

I know of two farmers who hedged their special crop values last March: one for 500,000 USD and the other for 800,000 USD. Both were completed in the 1.50 range and today we are trading a 1.31.

They will be adding CAD$100,000 and $152,000 to their crop revenue this year when they cash out at the end of this month.

A forward contract guarantees you the spot price you locked in at the time of your transaction and can be completed as much as a year out.

When utilizing these instruments it should be noted that they are not SPECULATIVE positions. They are locking in your perceived margins either when you make a sale in USD or are planting seed in the ground. In both cases, they had offsetting new crop contracts locked in for the value of thier grain.

Also, if the currency moves against you, you still have to come up with the difference in the contract.

So if you lock in USD$25,000 for delivery in December, 2003 at a 1.50 exchange rate and the actual rate was 1.60, you will have to come up with CAD$2500.00 if you don't have the USD currency.

Use it as a hedge. All hedges are not in the money.

In March, contrary to what the CWB said today, many analysts were calling for a 75 cent CAD dollar.

Hedging USD/CAD is a tool you have to protect yourself and to think the CWB was looking after your currency exchange and your interests in the pooling accounts is ridiculous after the performance they gave today.

[Ration-Al]

You have suggested a winning strategy for protecting oneself against a rising US Dollar. I assume that the strategy is the opposity for protecting oneself against a falling US Dollar.

What is the consequence of protecting yourself against a rising dollar when the result is in fact a falling dollar? Do you stand to lose the same amount as you stand to gain?

How is this not speculation?

[TOM4CWB]

Incognito;

Your are right about a marketing plan, with achievable goals.

I asked Brian White what Cost of production formula/price was used in CWB sales value target calculations.

His answer was that Cost of Production had nothing to do with CWB marketing, because the market does not care what our cost of production is.

In any well run business, in any industry that exists today, if the manager of sales values must be directly aware of and responsible to cover cost of sales... or that business cannot survive.

BUT GUESS WHAT!

THE CWB COULD care less what our costs were for each Bushel of grain they sold in 2002-03.

Instead they focused on historical prices in their defence of "doing a good job" of selling the 02-03 wheat pool. 2nd highest I believe they said.

What was the cost of each bushel that was produced and sold in 2002 through the CWB?

We Should figure this out.

Maybe for those farmers who shifted crop years from 01-02 to 02-03 the number won't be too bad, but looking at 2002 production then costs of all inputs were way up, while yeilds were way down.

The most objectionable part however was the irresponsible PRO issuance, that we are supposed to trust, and CWB Elections that occured at the same time.

AND don't expect CWB support be less with it's traditional supporters, IT WILL BE MORE!

THE FEDS PAID OUT, THIS was SIMPLY A "RISK MANAGEMENT" Payment that was owed to us! ANOTHER BENEFIT of POOLING and SINGLE DESK SELLING.

[TOM4CWB]

Incognito;

This will be a non-event with the general public, CWB supporters, the Media... A only example that I found today was;

WINNIPEG, MB, Dec 15, 2003 (Resource News International via COMTEX) --

"The CWB said there was no final payment in the wheat pool account because total earnings were C$9.86 per metric ton less than what was actually distributed to western Canadian farmers through initial and adjustment payments. Based on a pool size of slightly less than 8.7 million tons, the CWB calculated the shortfall at $85.4 million.

Shortfalls are covered by the Government of Canada by virtue of its guarantee of initial payments. The CWB has submitted its financial statement to the government.

The federal government will conduct its own independent review of the amount and will consult with the CWB in this regard, the CWB said.

The CWB attributed the shortfall in the wheat pool to a number of extraordinary factors, including the late harvest of 2002-03 and the drought reduced crop, the market share that was gained by countries like Russia, Ukraine and Kazakhstan as well as the surge in the value of the Canadian dollar."

We can learn a marketing lesson from this, but don't flog a dead horse!

[Incognito]

Al:

It is not speculation when you want to lock in your margins. A hedge is not always in the money when it becomes due and it does not matter if you made or lost money on your transaction on your hedging transaction.

You lock it in because that is where you are profitable - nothing more - nothing less.

The biggest fault is HOPE. Hoping canola goes to $10.00 won't make it go there. The CWB hoped the dollar would go back down - it didn't and it cost you money.

And you know what? It did cost you money. You can argue that the government is going to pick up the tab for this error in judgement or mismanagement, so it really didn't cost you anything.

Read the release again. The total loss in the CWRS pools was $9.86 per tonne. The estimated loss due to currency was $12.25 per tonne. The entire loss plus some was in currency management. It cost the western Canadian farmers $20,000,000. So don't give me the BS that the government picked up the tab.

[Incognito]

Good media relations on behalf of the CWB. It will be page 4-5 news as Saddman is still front and center and so is Martin.

If they spent half as much time hedging currency and utilizing risk management as they do managing the media - there would be no deficit

[TOM4CWB]

Incognito;

A further interesting issue is that the deficit was not just the initial shortfall of $85.4mil, but that close to an equal amount MORE of CWB churning revenues (interest income on bad debts etc.) brings the total well over $150 million.

If I were an auditor, the Treasury Board President, or a risk management specialist with Finance Canada...

I would be shaking my head at how bad a job of risk management the CWB did.

The CWB excuses don't hold an ounce of credibility with me... but ...

I am just a dumb farmer from the CWB "Designated Area" who is not "thankful" for all this gov. assistance!

Even though I helped pay off the deficit from this 03 crop by CWB deducts off my cheques!

[Everest]

Isn't a bigger issue the $1/2 billion that was left on the table..... the difference between the PRO's last fall, and the final realized price for HRS of $60/MT on 8.7 million tonnes? That was farmer's money.

( 8.7MMT times $60/MT is $522million )

[dnach]

Everest hit the nail on the head, as for Incog.., If a dual market system was in place at least every farmer would have had an opertunity to sell their wheat at a profitable price last fall. This joke of a price from last years wheat production is a disgrace. By the way I did recieve $10/bus for my canola. It's called market choice. The CWB intentialy low balled this years initial just so they can look like heros next Dec.

[charliep]

This is not to suggest the CWB contracts as a replacement for an open market scenario but rather to highlight the CWB options also provided better market signals/risk management opportunities. Example: Signing a basis contract prior to July 31, 2002 and pricing out/converting to a fixed price contract in the late Sept. to early Nov. would have provided an Alberta farmer a price in the $6.50 to $7.00/bu range (cash available in the fall) for 1CWRS 13.5 Protein. The issues were you had to take action jump on the contract before the deadline and risk around getting gouged with either not being able to deliver or ending up with feed wheat. Taking an early pricing option last Sept. to early Mar. would have netted an Alberta farmer close to $6.00/bu. Total pool returns 1CWRS 13.5 wheat (Alberta) - $5.60/bu.

[Incognito]

dnach:

Congrats on the $10.00 canola and don't shoot the messenger.

[rook]

You certainly won't hear me defending the board, but I don't have anything else to add that hasn't been discussed.

I wonder what the average taxpayer thinks of all this - drought and record insurance payouts in 02, $millions for BSE, wheat board deficit. I still think there's too much potential in farming to become saddled with a negative perception by the public. I wish more of the success stories made it into the news - the last thing I want to be thought of is as the prairie equivalent of a fisherman!

Makes for some interesting conversation with the city relatives at Christmas time, if nothing else.