$85.4mil Wheat Pool Deficit.

[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.

[TOM4CWB]

Rook;

You are right;

You hit it on the head, WE DO NOT WANT THE FEDS TO HAVE TO PAY FOR FIASCO's LIKE the $85mil CWB Deficit, which were avoidable.

It should be pointed out as well that PPO contracts did not cost the taxpayer any farmer payments, although likely the CWB took and kept both the payment from the Feds, and a payment back from me.

The between the 02-03 initial and PPO value locked in was taken off my 03-04 PPO payment this fall. As far as I can tell this extra tookage will go to pad the contingency fund even more!

[cropduster]

And to add to this discussion....It would appear that no one asking for change feels that it would require an infusion of taxpayers money.I was proud to meet with my MLA(Shirley) this fall and say that.She was silent for a second thinking that it was a joke...I`m thinking our new federal government will be really receptive any changes that don`t requir them to spend money!!!!!

[rook]

Paul Martin announces a spending freeze and Goodale says everything is going to be scrutinized. Does that include covering the board deficit?

I know it doesn't, but when they see the board requiring a cash infusion, when usually it quietly goes about its affairs, maybe that will get them thinking about at least being receptive to Alberta's proposal.

[sshiels]

If this gets paid off by the feds, is it a subsidy? Here's hoping our new finance minister puts an end to bad spending by cutting the wheat board off and making them accountable. I know that if my company loses money, I'm screwed, as is any farmer who's farm loses thousands or $85.4 million!

[Incognito]

sub·si·dy: Middle English, from Latin subsidium reserve troops, support, assistance, from sub- near sedEre to sit -- more at SUB-, SIT
Date: 14th century
: a grant or gift of money: as a : a sum of money formerly granted by the British Parliament to the crown and raised by special taxation b : money granted by one state to another c : a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public

[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.