$85.4mil Wheat Pool Deficit.

[TOM4CWB]

AdamSmith;

A Bird in the hand is worth two in the bush.

Cash pricing is a must, no matter how we arrive at this point...

THe taxpayers of Canada have paid a huge price to maintain the CWB monopoly... legal/court costs/fees, Saftey Net payments... lost opportunities.

THE CWB elections are turned into a farce... I cannot be an active wheat farmer and run to be a CWB director... because I grow CWB wheat and use PPO's.

I must only use the Pooling system, No EPO 90% only the pool if I am elected as a Director... how insane.

THe CWB MUST change, I am simply drawing attention to the fundemental flaws in the present CWB system... to make it a better system as soon as possible.

[AdamSmith]

Tom,

Just as long as you and others understand that just because it is a cash price doesn't mean it will be an open market price. There is a huge difference.

To me a cash price from the single desk system is only a 100% payment at time of delivery. 100% of a set price not 100% of a negotiated price.

An open market price is one that is mutually agreed upon by buyer and seller.

Price is determined when a willing buyer's price and a willing sellers price converge. That of course is just the beginning. In order for this to occur, the buyer must have the free capability to accept the grain and then transport that grain to it's next destination whether that be an export destination or a domestic processor. That buyer must also have the freedom to resell that grain or sell the processed product under those same market conditions.

I'm talking about the free negotiation between buyer and seller. Without these basic fundemental features in place it will be impossible for buyers to make offers to buy and sellers to make offers to sell. And without bids and ask there is no cash price.

As long as single desk remains, the best that can be achieved is a 100% payment upon delivery.

And the reality is that a 100% payment upon delivery is not going to save the CWB or the wheat industry from sliding into oblivion and it certainly isn't going to cause this grower to get back into growing wheat for the CWB.

[Ration-Al]

Adam

I can watch the cash market in Canola and know what the price is whether I am actively involved in that process or not. The same goes for wheat. I can watch the Minneapolis futures along with Kansas and Chicago and the corresponding cash markets and I can know exactly what wheat is worth whether or not I am directly involved in the process. Having a physical buyer for my product is not essential to the process. There is after all in the order of 100 million tonnes of the stuff traded in the world each year.

If the CWB can offer a cash price throughout the year they become a willing buyer. If I can compare that price to the active grain exchanges and determine that the price they are offering is attractive to me then I can become a willing seller.

You can be as negative as you want about the CWB. Your opinion on this matter will not change the fact that the CWB is currently the only game in town for milling quality wheat. If the current price of wheat does not cover your cost of production then I would say that you have made a good decision not to grow the stuff. If you have made the decision to not grow wheat as a protest against the CWB then I ask if a tree falls in the forest and nobody hears it.............?

[TOM4CWB]

Ration-Al and Adamsmith;

Prudence is the better part of Valour.

I will continue to grow significant volumes of human consumption wheat, because my farm produces high quality good volumes of milling grade product.

I have no reason to request changes to the CWB, if I am not growing products that require me to use CWB services.

AdamSmith, you have fallen into Art Macklin and Ian McCreary's trap... if you choose to refuse to use the CWB...

There point is that if you don't like the CWB... don't grow wheat... and the CWB will not cause any problem for you.... THIS IS FALSE LOGIC.

The CWB and it's pricing policies and single desk have influence over Commercial Canola, Lentils and Peas, Canaryseed, virtually grain product we grow on our farms.

WHen the CWB creates a PRO in the late winter early spring that is low (because the CWB wants our expectations low on market returns) then all other crops must compete with low base price to buy acres.

AND Brian WHite made it very clear at the C to C mtg. in Nisku, that if we did not like the prices offered through the PRO, don't grow wheat if the PRO is too low for you!

PPO's are better than nothing, but they clearly represent CWB opinions of markets a year away, and represent a sale to the CWB not to an end user... which defeats the purpose of clear market signals reflected back to my farm.

Adamsmith... I must fight from the inside (sell the CWB milling grain of many types)... because only then do I have an understanding and practical experience gleaned from this experience will truly allow me to understand what is happening at the CWB.

THe CWB is changing... no doubt about it... even though the same old retoric looks the same... they KNOW they are toast if they do not change!

I hope that we can effect change to make all our communities stronger... not destroy simply because we have the power to destroy!

[AdamSmith]

To Ration-Al, I assure you the decision was made for economic reasons, in fact I was mentioning to a farming neighbour just the other day that should the CWB lose it's monopoly tomorrow, I probably still wouldn't seed any CWRS next spring.

To Tom, I still must grow cereals in my rotation, and those for the last few years have been malt variety barley (a CWB grain) and winter wheat (another CWB grain) so even though I don't grow CWRS I'm still growing grains that are hugely influened by the CWB. Other than the first year I grew winter wheat, I have sold all my production into the domestic feed market and the barley seems to be 50/50 (malt to CWB and feed to the domestic market)

But gentelmen let's just suppose the CWB does offer a cash price program. And lets say the market price in Minnie or KC rallies and hundreds of producers lock in the rally prices yet the CWB does not resell right away and then the market falls leaving the CWB losing money buying grain from those producers. In the commercial world that's no big deal but in the non commercial world of the CWB it becomes a little more complicated. Ultimatly that money comes from somewhere and we know the CWB is not at commercial risk, so who will cover that loss? Also do not underestimate the importance of basis negotiation in determining farmgate price.

I haven't even touched on the varietal issues like varietal development or quality issues.

A learned individual in the grain policy buiz, was talking to me the other day about how Corn yields, Bean yields, HRW, SWW, and Canola yields have increased since 1960. Corn alone has increased by close to 150% yet CWRS specificly has managed only a 15% increase in trend yield since 1960.

That alone speaks volume about the single desk system.

Lastly Ration-Al about the tree in the woods thing, I'll refer to Dr.Phil who says that the most important relationship that we're ever going to have in this life is the relationship we have with ourselves. So when that tree falls, I hear it and that's all that really matters to me.

[Ration-Al]

Adamsmith

You said
"But gentelmen let's just suppose the CWB does offer a cash price program. And lets say the market price in Minnie or KC rallies and hundreds of producers lock in the rally prices yet the CWB does not resell right away and then the market falls leaving the CWB losing money buying grain from those producers."

Before you condemn the program you should take the time to actually understand it. When a producer enters into a PPO that grain is hedged so that there is no risk to the CWB. The producer has taken himself out of the pooling system completely. The producer who enteres into the producer pricing option pays all of the costs of doing so. He pays the admin costs -- he pays for the borrowing costs, and he pays for the cost of hedging.

You see the producer pricing options were intended from the outset to completely indemnify those producers who choose to stay in the pooling system. Cash pricing is simply an extension of the fixed and basis price contracts with the addional ability of pricing throughout the year. The principle remains the same, except that at some point in time those who wish to price outside of the pool must make a committment that they will in fact stay out of the pool even if they called it wrong and the cash market drops below the PRO. You cannot have the freedom of cash pricing throughout the year and still have the ability to jump back in the pool and drag down the PRO for those who committ early to the pool.

[AdamSmith]

Ration-Al,

In a free society it is my right and privilidge to condemn any product or service I choose. This is what allows for progress. Bad products, Bad Services and Bad Businesses fail because consumers have the freedom to condemn.

But what I see and here from the single deskers is You'll take what were offering and you'll like it. Well Henry Ford tried that trick with his Model T. He said to a customer who wanted a different color car, "You can have any color you want, as long as it's black". Had Henry Ford had a legislated monopoly we'd still be driving only black cars and trucks.

If you believe the CWB PPO/cash price system is fine, that's great. But don't, I repeat, don't try and tell me what I should like and dislike.

[Ration-Al]

I don't recall telling you to like or dislike anything. I did suggest that you understand something before you make false assumtions.

That is a simple rational statement. No need to bring Henry Ford into the discussion.

[TOM4CWB]

Ration-Al;

I cannot agree that there is no risk to the pool on PPO contracts.

When I hedge a PPO, the CWB SAYS they hedge the risk, but in fact there is no specific risk management procedure to back this up.

I found this out last year when I tried to liquidate a CPS PPO... and was told no specific hedge was in place on the contracted CPS I had not yet delivered... in fact that my hedge had probably been lifted months before.

We will know more when 2002-03 CWB financials on PPO's and contingency fund/risk management accounts in the PPO statements.

The CWB has a real mess for risk management going on, and says what is convenient to allow them to keep as much PPO basis margin as possible, to build up the contingency fund.

It is just another symptom of same problem that created the $85.4M deficit.

[TOM4CWB]

Ration-Al;

I went back in my documents and this is part of a Message I wrote to Henbent this spring that helps clearify CWB hedging pracitices on PPO's:



TOM4CWB wrote:
This is what Adrian Measner wrote me on February 24th, 2003;

"As you may be aware, the CWB hedges the producer pricing options by selling the futures when producers lock-in a FPC contract or when they lock-in the futures component of a Basis Price Contract (BPC).
THE CWB UNWINDS THIS HEDGE BY BUYING BACK THE FUTURES AS THE CWB PUTS SALES ON THE BOOKS (ESSENTIALLY THE CWB IS BUYING THESE PRODUCERS OUT OF THE POOL ACCOUNT OR OUT OF ALL SALES). THEREFORE, MOST OF THE FUTURES BOUGHT BACK TO DATE WOULD HAVE BEEN PURCHASED AT VALUES HIGHER THEN THE CURRENT MARKET." (EMPHASIS ADDED)

TOM4CWB said: Taking off a hedge BEFORE the specific PPO contracted grain is delivered... is not risk management, it is foolish speculation. The CWB expects me to pay them if the futures goes higher, If I need to buy out of this contract. SO EXACTLY WHY DOESN¡¨T THE CWB HAVE THE OBLIGATION TO HOLD THE FUTURES POSITION UNTIL THEY TAKE DELIVERY OF THIS CONTRACTED GRAIN?

WHAT IS REQUIRED OF ME, SHOULD BE REQUIRED OF THE CWB, if this is to be a fair commercial contract that has legal legitimacy. AGAIN the CWB tells me to sue them, If I don¡¦t think the contract is fair.

THIS CWB PPO management of futures is not commercial, not risk management, and not to the benefit of my farm or your farm."

I practice the CWB sells the PPO grain to the contingency fund at the final pool price... then fiddles around with hedges as they think "looks good" and then puts the remainder of the funds into the contingency fund.

CWB operations are not accountable and do not stand up to the principals of common law... which CWB directors have sworn to uphold... these principals are:

1. The Common Law is based on the Golden Rule, which states;
Do unto others as you would have done unto you,
And the Negative Golden Rule, which states;
Do not do unto others as you would not have others do unto you;

2. The two fundamental principals of common law:
ć Do not infringe upon the Rights, Freedoms or Property of others, and
Keep all contracts willingly, knowingly and intentionally

Common law maxims include:

ć That for every wrong there is a remedy,

ć The end does not justify the means,

ć Fundamental principals cannot be set aside to meet the demands of convenience or to prevent apparent hardship in a particular case,

ć Ignorance of the law is no excuse for breaking the law,

ć Two wrongs do not make a right, and

Probably the most fundamental right of all is,
ć One can enlarge the rights of the people, however they cannot be taken away without their informed consent.

[Ration-Al]

Tom,

you said

"WHAT IS REQUIRED OF ME, SHOULD BE REQUIRED OF THE CWB, if this is to be a fair commercial contract that has legal legitimacy. AGAIN the CWB tells me to sue them, If I don¡¦t think the contract is fair."

I assume that you have a contract with the CWB when you enter into a PPO. You do that of your own free will accepting the terms and conditions of that contract. What is required of you under the terms and conditions of that contract should have absolutely nothing to do with how the CWB manages risk internally. How and when they unwind their hedges and how much money ends of in the contingency fund has zero impact on your ability to freely exercise your rights under the PPO contract.

Why do you want to confuse the issue with your view on the business rationale of the CWB? Do you question the business rationale of your local car dealer when you purchase a vehicle from him. As long as the two of you honor the terms and conditions of the contract what do you care if he profits nothing or a lot from the deal.

I suspect you are going to turn the argument around and say that you disagree with the CWB's management of the PPO's from the perspective of a producer in the pooling system. Again I reiterate that all of the costs of the operation of the PPO's are borne by the participant. The cost of administration, the cost of borrowing and the cost of risk management. And i think that you are correct in stating that the proof will be in the annual statement of the CWB when it comes out. I think that the PPO's are accounted for completely separate from the pooling system and the net result of the operation of the PPO's whether that be positive or negative ends up in the contingency fund.

Last year the contingency fund did end up with a significant balance as a result of the operation of the PPO's. You can characterize that as being unfair to you as a participant of the PPO but those were the rules under which you chose to become a participant and whining about the balance in the contingency fund after the fact is just sour g****s.

[TOM4CWB]

Ration-Al;

You missed my principal main point, that PPO contracts are NOT covered be commercial risk management hedges that can be unwound like a commercial canola hedge.

The CWB wants it both ways, and will keep the futures profit without crediting it to the PPO farmer contract holder if the CWB "feels" like it.

“Arbitrage opportunities will be measured to assess the value of switching to a higher basis level and switching to the pool account. As well, any losses in the futures position need to be accounted for.”

How exactly does the CWB do this?

“There are provisions to aid in controlling liquidated damages: transfers and buyouts.”

The CWB hedges the producer pricing options by selling the futures when producers lock-in a FPC or when they lock-in the futures component of a Basis Price Contract (BPC). Then CWB takes this hedge off by buying back the futures as the CWB does it's sales, instead of taking the hedge off as the specific PPO contracted grain is delivered to fill the PPO contract I hold.

Ration-Al, this is NOT the in the contact terms and conditions, nor are the “provisions to aid in controlling liquidated damages: transfers and buyouts.”

ONLY a monopoly can get away with this.

I as a farmer have no choice but to sign up to this monopoly contacting PPO system, this is not, a optional choice or as you put it:
“You do that of your own free will accepting the terms and conditions of that contract.”

I either take the CWB’s PPO contract or pool;

NO other alternatives.


Ration-Al, since I am the producer filling the coffers of the Contingency Fund, I am curious why you say; “How and when they unwind their hedges and how much money ends of in the contingency fund has zero impact on your ability to freely exercise your rights under the PPO contract.”

Ration-Al, how the CWB manages this risk has a huge impact on the basis the CWB feels justified in charging on the PPO contracts,...

...which is MY money confiscated to pad the CWB’s accounts… many times it doesn’t end up in the contingency fund but ends up in the pooling account which isn’t supposed to happen.

On top, huge losses from PPO’s likely have been encountered in the pool for the 02-03 crop year, as we know the price constantly dropped as the crop year progressed.

Since the CWB said:
“THE CWB UNWINDS THIS HEDGE BY BUYING BACK THE FUTURES AS THE CWB PUTS SALES ON THE BOOKS (ESSENTIALLY THE CWB IS BUYING THESE PRODUCERS OUT OF THE POOL ACCOUNT OR OUT OF ALL SALES). THEREFORE, MOST OF THE FUTURES BOUGHT BACK TO DATE WOULD HAVE BEEN PURCHASED AT VALUES HIGHER THEN THE CURRENT MARKET."

I was told this at the end of February, and didn’t deliver my CPS till June, while there is a good chance the CWB took the hedge off in October 02 at the top of the market! Exactly how much did this cost, and who will pay for this fiasco Ration-Al?