2004-05 PRO

[TOM4CWB]

Charlie, Incognito;

I just did the calculation for Dec 04 MGE futures to CDN$/t

Dec 04 is $4.164US times Dec 04 CDN$@1.3468 equals $206.06CDN

THe normal CWB FPC basis above MGE@CDN$ is close to (#1CWRS 13.5px) $20/t export position Vancouver Canada/St Lawerence.

THis adds up to over $225/t.

WHy exactly did the CWB just put out the #1CWRS 13.5px PRO at $201/t?

Has the CWB already started giving away the 2004 harvest?

If the CWB were to be "extracting a premium" wouldn't we be saying the PRO will be CDN$240/t... with a discount to the PRO of $15/t so at least we have a chance to get some decent prices out of the CWB forward contracting sales programs?

Isn't this basic marketing 101 stuff?

GUYS, help me here... what am I missing?

ANYONE out there?

[crusher]

My calculations of Friday's close (ignoring the spike on Monday) are as follows: Minni Dec $4.02, Cnd $ 74.18 for a net $199.10/tonne. My average FPC last year was $15.25. So according to my numbers their PRO isn't too far out. I don't see any "premium" either, perhaps the Minni price is a more "premium" "premium" - how's that spin. I'm tired of the spin doctors also - just SHOW ME MY MONEY!

The question is what do we do with what we've got. If there are decent pricing opportunities over the next four months, how do you hedge the grade risk?

[crusher]

Tom,
Have you looked at the CPS and calculated where prices are at, including the $5/t for 5700 and some trucking incentives? Do you anticipate larger deductions for freight/handling etc?

A note on the previous comments, likely ocean freight is hurting the PRO.

[JACKFLASH]

TOM4CWB

I was looking at the Dec.04 also,and came up with 225t Can.FPC. Then I took 50T off for freight=$4.77 net for #1 13.5 HRSW. But where does the other $24 T go.

[TOM4CWB]

Crusher;

THis is the CWB reasoning:

"Higher Production, Strong Dollar Cuts 2004-05 PRO
Winnipeg -- The CWB today released its first Pool Return Outlook (PRO) for the 2004-05 crop year. Estimates for returns in the wheat pool range between $3 per tonne and $14 per tonne lower than values in the January 2003-04 PRO.
A significant factor pressuring Canadian dollar returns for wheat, and the other pools, in the upcoming crop year is a forecast for a stronger Canadian dollar. Competition in global wheat markets is expected to increase as the major exporters compete with larger export surpluses again in Russia, Ukraine, Kazakhstan and India."

TOM4CWB's reason for CWB Mistake in 04-05 PRO.

1. THE CDN$

The CWB can only use this excuse… IF there is no risk management capability in the CWB sales dept.

A comment such as the above statement does not take responsibility for marketing my grain… it is an excuse to give my grain away.

Yesterday the cash CDN$ was @ 1.336, while Dec 04 was @ 1.3468, while Mar 05 was @ 1.3445.

The CDN $ is significantly weaker than it was a month ago… when the cash CDN $ was trading @ 1.2956 Jan 23rd, 1.2963 Jan 16th, and 1.281 Jan 09/04.

2. Former Soviet Union wheat.

This is like saying John Deere must lower the sales values of tractors… to compete with BELARUS, or GM must lower the sales values of its cars to compete with LADA.

GM or John Deere sales V.P.’s would be fired on the spot if they attempted this maneuver!

On the freight, in a world of short grain supply, which we have today, the customer is responsible for the freight.

$5/bu cash feed peas resolved the freight problem, as did my specialty Canola contracts for next year. Many suggest the freight issue will resolve itself over the next 6-9 months.

5700 SHOULD bring a premium price... IF we can produce a commercial volume to do commercial sales. This means premiums paid SHOULD flow through to us, without discounting to make up the difference... BUT what will the CWB do CRUSHER?

Marketing 101 has not been applied in other areas of CWB sales performance... what do you expect the CWB to do?

Jackflash;

The $24/t is scheduled for the pool account. The PRO should be at least $240/t IMHO.

A constructive comment;

THE MINIMUM price for a 2004-05 #1CWRS 13.5px should be $201/t not the PRO for the whole year!

THis would give the CWB an 90% EPO of $216/t with $15/t for the EPO premium. WIth all the high class marketers at the CWB... it should be a snap to pull this little project off...

[charliep]

A question I heard over and over at Grain World is whether the Pool Return Outlook is even relevant in today's world (was in the past). What I will be looking at is the basis that will be used in the producer pricing option announcement this Friday. Rumors are that the period for signup on the PPO alternatives will be extended but we will have to wait to see.

[WoolyBear]

One of the most important things that we learned in marketing was NEVER discount your product. Or I guess we should try not too. If we truly believe our product (Wheat) is better than most, then we have to sell it like it is. As soon as the product is discounted, everyone will threaten to switch their buying just to see how low you will go to continue to serve their demand for you product.

Me thinks that the CWB is giving up far too soon when someone starts yelling "COMPETITION". The competition isn't producing CWHR, segregated according to quality, protein, and dockage standards.
Someone out there doesn't seem to want the "farmers" to produce a quality product, and get paid for their honest efforts.

[boone]

woolybear" Historicaly it has been the elevator companies that have a propensity to blend and comingle. However it is up to the standards committee to arrive and enforce higher standards.

[charliep]

Boone

Just seeking clarification on your thoughts on elevator blending. My comment is the current CWB environment increases the incentive to blend. Rewards are to run the high through put elevators petal to the metal within the rules/reward system the CWB dictates to grain companies and they both are allowed to share in any upgrades in the system.

In an open market or one in which the grain company has a more direct relationship (make the CWB a port buyer) and more responsibility/accountability for the products they deliver would result in less blending.

An example from the past is feed barley. The grain companies used to take a lovely 44 and 52 pound/bushel barley to end up with the 48 pound per bushel barley required in feedlot contract specifications (blended elevator). The only problem was that you ended up with a blend of thin and plump that was unworkable in most feeding operations. The end result was more direct farm to feed lot business and the birth of more direct brokerage business which could meet quality requirements/operate at lower cost. The grain companies have been forced to change behavior in the new market environment.

What are other thoughts?

[boone]

charliep: I certainly agree with moving cwb to port buyer, but they are at one point encouraging, producer car loading alliances to foment a voting critical mass.(and for the value it brings farmers) And at the same time doing whatever it takes to make grain move in a timely fashion to meet our PULL style market. Which as everyone can agree is hurry up and slow down. The customer needs to go hungry once so the Board isn't jumping to this jerky tune they call a market. The concretes are the only way anything can satisfy this movement. Hence the board backs off seperstion and specs when the customer isn't paying a premium. CGC excepting.
As for Barley, the board has been asked about setting up a high test weight premium market for export. No one championed it from grain companies. Farmers don't either understand the benefits or customer won't pay the premiums. I would like to see it for as a trial for a couple of years. Even if it takes considerable sizing to reach test wght. Minimum protein and plumpness. Just as another niche market on behalf
of the farmers of Canada, My thoughts.

[crusher]

Minni Dec wheat keeps inching up and the dollar is sliding a little. Interesting to see what the FPC will be. If basis is normal, I get $4.85 net central Alberta - not Canola values, but I can work in a profit at that price.

[Incognito]

From Reuters:

U.S. wheat growers, traders and shippers must become more consistent in meeting the quality demands of Asian and Latin American buyers to compete effectively on the world market, wheat industry leaders said on Wednesday.

"We do really have to focus more on quality and consistency of quality," said John Oades, vice president of U.S. Wheat Associates, an export promotion group.

Oades, speaking on the sidelines of a U.S. Wheat Quality Council meeting in Kansas City, Missouri, said American wheat players must embrace quality targets for wheat classes, rapid testing at elevators for quality, and adequate segregation systems, among other steps, if they want a significant share of fast-growing flour markets for Asian noodles and Latin American tortillas .

"It is in the hands of the entire industry," he said.

The drive for control over distinctive characteristics, including hardness, color and texture, has emerged over the last decade as trade agreements have led to direct negotiations with overseas millers rather than government buying agencies.

"The market has changed," Wheat Quality Council board member Mark Hodges said in an interview.

Hodges said that a decade ago U.S. wheat promoters had one government buying agency to deal with, in Mexico. Now they negotiate with 96 different mills in that country.

"That is a drastic change. It's gotten much more complicated. We can't compete as the low-cost provider, so if we don't have quality we don't have anything," Hodges said.

China, which has emerged as a significant U.S. wheat customer, does not yet have the same level of specific quality demands as do Japan, Mexico and other buyers, Oades said.

Still, it is uncertain how much wheat China will be buying from the United States over the long term, he said.

_______________________________________

Some thoughts before I head to bed before my family thinks I am totally off the wall for taking this industry too seriously:

1) We had a system in place to segregate and IP wheat 25 years ago and we knocked em down.

2) The importer wants at the farmer. Not totally because he thinks he can buy grain cheaper but because he wants smaller lots of higher quality grain

3) 20 years ago the drawing area for grain delivered to a local elevator might have been 40-50 miles, tops: today it is 200-300 miles making the milling characteristics uneven before everyone starts blending to the line to ensure they make a profit.

4) I used to watch the CWB allocate cars to vessels from all parts of western Canada to ensure the customer received what they wanted. Can't do that in this environment.

The current system we have in place is not conducive for high quality grains.

Witness Marubeni and ADM's agreement to work toward IP grains to control quality.

Quote:

This will utilize the strength of ADM’s infrastructure to meet the strict standards of identity preservation required by consumers in Japan.”

Unquote

What are we doing as a country, industry and grower to change to this new environment?

[Incognito]

Boone:

seperstion?

You had me scrambling to Merriam - Webster and I still couldnt find it?

[boone]

incognito: Well maybe the Rogets thesaurus. Sorry about that but when my old decrepid hand slide past 30wpm my separations become sepersitions. Noticed it but after reading all these articles lately about how unnnnnecesary it is to spell words crecortly I said let it pass. Anyway I'm thinking charliep must have had a good holiday or his Viagra shares (wink nod) are coming through for him cause he seems to be firing on 8 cylinders with some of these posts here, Good Work. Anyone feeling good about the canola they sold on the 25th of Feb. Basis is widening and the americans have announced there would be no threat to their own beans if SA beans and or meal came in. Nice run anyway, hope it can firm Nov. into 385.00 territory. Notice it faded less tonight then Jan.Mar. Commercial are pressing retail hedgers(farmers) like Nov. any thoughts?

[Incognito]

It really depends on the SA crop. Quietly the USDA was nattering 62 MMT so it was no surprise that they went to 61 MMT for Brazil. A lot has changed since the last WASDE and i think it won't break either way until the next USDA report.

The WCE canola contract is discovering where farmers will sell - not the price of canola or canola oil.