Another CWB Disaster Ahead?

[Everest]

What would the explanation be for the 90% EPO discount going up by 50 cents per tonne (from $2.00 to $2.50/MT) since Christmas when Minneapolis March futures have risen from $3.80 to $4.10/bushel? Does the appreciating Cdn$ get the blame again? Could it be that the CWB has not managed their currency exposure once again so soon after last year’s debacle? Are we headed for another disaster in the 03-04 CWB performance for wheat? Given the low initials and this little hint in the EPO discount, it looks like that is what is shaping up.

[TOM4CWB]

Everest;

Until we see the CWB Books for 02-03... we cannot know how much CWB deficit has been transfered to the 03-04 crop year.

I would not hold my breath on the CWB hedgeing any CDN$'s... if they didn't last year, why would they do things differently this year? Remember farmers take the risk ... and manage risk through the CWB pool...

And it all averages out over 25 years or so... doesn't it Everest?

One of my freinds was told by a CWB risk manager that it was against CWB policy and rules to hedge currency...

What does past performance indicate Everest?

[AdamSmith]

Everest,
Given the fact the fed’s want this absurd system to remain, and given the fact that they hide behind the CWB elections as cover. ie. “It’s up to farmers to change the CWB” or “Farmers are in control of the CWB”. Why don’t we farmers decide to prop the CWB up even more? I bet we could get all farm groups to back the idea. Instead of $85 million, how about $785 million? or $1 billion and 785 million? After all isn’t it UP TO FARMERS how the CWB is run. So if it’s ok to scam the taxpayers for $85 mil, because that what farmers decided to do, I say we go to town and just decide to prop the whole system up with some serious chi...ching. I’m sure Alcock, Goodale and Martin will go for it. As long as it’s “THE FARMERS DECISION”.
Or am I just being unreasonable in thinking the Feds really believe what they say about who runs the CWB and who it mandated to serve.

[cropduster]

Now that`s a novel idea!!!!Wonder where old Ration-al is on this one????Maybe we just haven`t caught on to how the CWB directors are going to HELP us,hey...Everest

[TOM4CWB]

Cropduster;

Did you see this one?

BISMARCK, N.D., Jan 02, 2004 (The Canadian Press via COMTEX)

-- The Canadian Wheat Board has long been vilified by American farmers, but as the board tries to raise operating capital, some could find themselves eligible to invest in it.

"There's some irony in that," said Eric Wondrasek, a farmer from Bottineau, N.D., who also has been tilling land in Manitoba for nearly 20 years.

The Wheat Board, which controls wheat and barley exports from Canada's prairie provinces, hopes to raise $150 million in operating capital by April through the sale of managed futures notes to "ordinary" investors."

Can you figure out how the CWB can raise $150mil... while leveraged into a futures trading scheme to return 8-12% per year... trading beans, oil, wheat, currencies... whatever "looks" good...

While the CWB BOND insures that a person can't do any worse than 1% interest/year... if the Bond is held to maturity for 8 years.

Who exactly is at risk on this crafty little deal?

[Everest]

Well AdamSmith, you do have a good imagination! However the real outcome of your idea is that as long as the feds would support your idea, this is how the CWB Board of Directors might HELP us.

Don't forget how the CWB directors HELPED us by giving $400 a plate donations to Chretien and the Liberals.

Don't forget how they HELP themselves to campaign funds when director elections are held. After all it was their exuberance and desire to keep their power intact that kept the adjustment cheques coming during the campaign that HELPED get us the $85million deficit.

Don't forget their "communications" budget is nearly $2million now, HELPING us better understand what a good job they are doing.

And now I hear they have enough money to HELP their supporters with buses and hotel rooms attend Saskatoon's Crop Production Show...to HELP stack CWB day on Jan 16!

AdamSmith, snap out of your reverie! If you keep it up, all you will do is HELP contribute to the 'Wealth of the Priveleged Class'.

This kind of HELP I don't need!

[parsley]

Tom4CWB,

You're acting pretty sharp today.

Let's say that some of the farmers in the West(investors) buy the minimum $2000.00 bond with some farmers buying a considerable amount of bonds. Let's say that $100M is raised and all the farmer investors buy and own CWB Bonds which are backed by the Federal Covernment's purse.They're low-yielding, but safe with Government guarantee.

So far so good.


The money is being raised to pay some of the CWB's "operating loan" deficit, right?

Now if the investor money is paid TO the the company doing the deal for the Wheat Board, that company will have a lot of cash in their top desk drawer.

That money is supposed to go to the pools to pay down the deficit, right?

What happens if the handling company declares bankruptcy? The investor will be covered by the Feds, but what happens to the POOLING ACCOUNTS that never got the money deposited into them?

Who carries the risk?

Parsley

[AdamSmith]

Everest,

Are you suggesting the CWB skims,scams and sucks up farmers dollars, for their own personal angrandisement? Are you suggesting just as Sadam had his "OIL FOR PALACES" deal with the UN, the CWB has it's own "GRAIN FOR PALACES" program with the feds?

Seriously though, we all know the feds would never go for it because it's an absurd idea.

But my point is to say, "Farmers are in charge of the CWB" and to say "Farmers have the power to change the CWB" is equally ridiculous and absurd.

The feds have complete control over the CWB Act and they alone have the power to make changes.

I was only using absurdity to demonstrate another absurdity.

If you can't mock the CWB system, what can you mock? France?

[melvill]

Everest, in reply to your initial question, the CWB uses US wheat put options and Canuck Buck call options to manage the risk on the EPO. Premiums on any option go up as the volatility for the underlying futures goes up. Options on futures, regardless of whether they are puts or calls, are just price insurance and insurance premiums go up as the risk increases. The risk to the option writer (the person taking the premium) increases as the volatility - the speed that futures prices change - increases. Look at a recent graph of the Cdn$ exchange rate futures. The rate of rise in the value of the Cdn$ has increased dramagically since Dec 19 and, therefore, the cost of Cdn$ call options premiums has increased significantly. Minneapolis Mar 04 wheat futures has increased and decreased dramatically - increased volatility -since Dec 30 so wheat put option premiums will have increased.

[TOM4CWB]

Melville;

I would have to see what the CWB did on EPO's last year... and the contingency fund balance to have an indication on whether or not the CWB actually covers off the risk. What you have claimed sounds good on paper... will the CWB risk management dept. actually do what you proposed?

[Everest]

Thanks Melville,

Your explanation is good, and if correct seems to explain recent moves. Currency and wheat futures volatility seem to have declined somewhat in the last few days. The $Cdn has fallen, and so has Minni wheat futures. The 90% EPO is now back down to $2.00/MT.

Melville, do you suppose the CWB is managing risk the same way for the $$ remaining in the pool accounts from sales already on the books? If they do, how much would you estimate they mitigated the $Cdn increase in last year’s pool? They claimed the increase cost the pool $12.25/MT.