$85.4mil Wheat Pool Deficit.

[Ration-Al]

Isn't dollar cost averaging also a hedging type strategy if you don't want to rely on market timing?

I called a friend at the CWB who informed me the treasury group has an active risk management strategy and that they've been using over the counter instruments for approximately 30 years to hedge the fx risk. I guess the media have mis-interpreted some of the comments they heard on Monday.

They currently use forward contracts to lock in fx rates throughout the crop year. This is their risk management tool. They apparently did exactly as the AWB - by actively monitoring and managing fx risk throughout the year, they protected the pool value from the full impact of the weakening US dollar. Through a type of disciplined hedging process, they apparently locked in fx rates on a good portion of the crop prior the sell-off of the US dollar that started in January 03 thus producing a good fx return to farmers for the 2002-03 crop year.

Comparing the public number of $9.86 per tonne of deficit to $12.25 for fx losses appears to be taken out of context. The number simply explains a portion of the total drop in the PRO, from the highs calculated in the fall of '02 to the final results calculated in November, 2003.

[Incognito]

Since you are so close to the CWB Al, ask these question as well:

1) what corporate governance rules are in place to distance management from the Board of Directors? 2) Who made the decision on the United States dollar policy adopted by the CWB? 3) Who is responsible for the $12.25/MT loss in the spring wheat pool due to currency hedging – it is management or the Board of Directors?

[Ration-Al]

Good questions. I'll dig some more, but if you want just call 1800-ASK 4CWB and do some digging of your own. Gord Menzie is the CFO and Wendi Thiessen is the Corporate Treasurer. You may not get to talk to them directly but you can certainly ask those questions and somebody will get back to you. After all they do work for us.

On item #3)Who is responsible for the $12.25/MT loss in the spring wheat pool due to currency hedging – it is management or the Board of Directors?

I think the previous posting answered that one. The 12.25 was not due to currency hedging. Currency hedging did in fact keep the loss down to that level.

[Everest]

Ration Al,

You are right. The $12.25 the CWB claims is the fx loss is just part of the ~$70/MT drop in their forecasted performance in delivering value to farmers for their wheat. $60/MT was picked up by farmers, and $10/MT by the taxpayers.

The PRO’s are supposed to be a forecast by the CWB of how well they intend to do in the marketplace in capturing value for our wheat. The PRO’s are not supposed to simply track the market. This makes me wonder why they plot the PRO against Minneapolis futures (in $Cdn no less!) to explain its rise and fall. If they plotted against Minneapolis futures in $US, the PRO changes and futures changes would be almost the same.

All that tells me is that the CWB did not do much better than anyone would have done selling an equal amount of wheat each month. Minneapolis futures dropped 36% from Nov to July, and the PRO only dropped 23%. But by November we were 1/3 of the way through the crop year, so if you factor out sales volumes of about 1/3, the losses in the PRO and Minneapolis futures run pretty parallel. The losses in the PRO only stopped when they reached the level of the gov’t guarantee. So clearly, the CWB risk management program did little to mitigate farmers’ risk. They did protect the pool account a little better. It only lost $10, but the farmer lost $60.

What value is the single desk to me, if this is their risk management and marketing strategy? But even more important, in the context of compulsory marketing scheme, what value is the PRO? It certainly doesn’t provide me with any sense of what my crop if going to finally realize when the smoke clears. (Pun intended)

Back to the fx issue now. I did hedge my fx risk for my non-board crops by buying $CDN dollar futures when I perceived a greater than normal risk of its appreciation ahead. However, in my naivety I assumed the CWB had done that for my wheat. In hind-sight, I put way too much value on the PRO’s. It’s partly why I didn’t use a PPO. I assumed that since they have professionals on staff to do this kind of thing, they would do much better than I would on my own.

[Ration-Al]

I also question the value of the PRO. I is a complete guess when it first comes out and has little or no value in terms of sending a signal to farmers as to what to plant.

At the end of the year it is simply the average of the sales program.

During the course of the year it gives way too much information to the customers.

I think we should do away with the PRO or at the very least put a range of prices with some percentage probabilites assigned to them. Too many people put too much faith in the PRO.

Perhaps the PRO should look like this at the beginning of the crop year:

250 - 20%
220 - 60%
190 - 20%

That might tighten up as the year progresses but I still question the rationale of giving a PRO other than at the beginning of the crop year to give some signal for farmers to make planting decisions.

[Incognito]

Another question:

Where did the savings go from the tendering process in the CWRS account that was so hyped last year?

[Incognito]

Everest:

"Back to the fx issue now. I did hedge my fx risk for my non-board crops by buying $CDN dollar futures when I perceived a greater than normal risk of its appreciation ahead. "

Congrats on the foresight. Curious as to when and at what level you hedged?

[Ration-Al]

I assume that the tendering revenues went into the pool accounts. It should show as a line item on the financial statements when they come out.

[TOM4CWB]

Charlie;

I was reflecting on the CWB refusing to take CPS/3CWRS/Feed wheat on the "c" series contract.

It really stinks that the CWB are such a bunch of cowards, that they locked out the lower grades of wheat from the marketing arbitrage of world prices, and forced wheat farmers to sell for less than market value into the non-board domestic market.

How quickly we forget the travisty of justice the CWB got away with,


... with a few smooth comforting words... from CWB spin masters...

we forgive and forget like nothing ever happened...

While young grain farmers are destroyed and have the life blood sapped out of them. What can these folks do... apply for NISA/FIDP... learn to suck on government to survive...

WHat a heritage to leave our next generation!

[Ration-Al]

Was it fair for producers to play the non-board feed market off against the pooling system? Whey didn't producers offer their grain to the CWB on the A and B series contracts? Was it because the domestic feed market looked too good compared to the pool price. Then when the domestic feed market collapsed the pool price looked better and then and only then did they offer their grain to the pool, thereby dragging down the pool returns for those who had committed to the pooling system on the A and B series contract.

Perhaps the A and B and C series contracts should each have their own pool and their own PRO. Perhaps the A series contract should be closed out at the same time the B series contract is opened and then sales could be tallied up and final payments made sooner.