What are you doing with this round of CWB contracts?

[charliep]

The below are some thoughts on this round of CWB contracts. Agree or disagree? CWB FIXED PRICE/BASIS CONTRACTS: Farm managers should be considering the current round of CWB CWRS basis contracts in their pricing strategy. The world wheat outlook is optimistic given the tighter supply demand balance forecast for the coming year. Having CWB basis contracts in place with the objective of using potential price rallies over the next eight months to take a locked in a price/improve cash flow is a good strategy. The CWB is only committed to carrying on this program until the July PRO at which time it will be reviewed. I wouldn’t leave 100 % of this decision until the next contracting round. An interesting strategy for those of you who like to play which price pooling year lottery is to consider delivering your wheat in the 99/00 crop year, put it on a storage ticket and use a CWB fixed price contract (applies to CWRS wheat only) to price it out at the time of delivery. The CWB 99/00 pool return outlook for 1CWRS 13.5 protein is $191/t (in store Vancouver/St. Lawrence). The fixed price contract over the first 3 days of the June contracting period (remember you only have until Wednesday to contract on this go) has been around $203 to $204/t (also port position). Delivering old crop pooling year/pricing new crop using the fixed price contract would put about an extra $12/t in your pocket.

[marcelvd]

I agree, Charlie. I signed a basis contract this past round in hopes of improved prices eventually occurring due to the tightening world stocks. On the other hand, the world stocks have supposedly been tightening over the past four years, and prices haven't really reflected that yet... but we keep hoping! I may sign up another one or two basis contracts next month depending on the conditions and outlook at that time.

[marcelvd]

Don't forget to take into account that settling in the new crop year for deliveries that are on storage now will include the new crop year handling and freight tariffs. I haven't seen the elevator companies list of maximum handling tariffs or the railway freight rates yet. If you are on a main line, perhaps the freight rates will be lower than this year, which will be additional benefit. If you're on a branchline, I'm not sure. A good strategy may be to put deliveries now on storage and watch these costs. You can still decide up to July 31 to price this year's pool account (with this year's frt and handling deductions)) if that makes sense. The fixed price contract locks in the value and any effect of currency risk on the PRO value. If the Cdn dollar rises a cent, it can impact values about $3/tonne or $.8/bu. You can still use the basis contract in July 22-28 and lock in the futures any time before you call for settlelment of the cash ticket. Remember you have 90 days storage only. So if you are delivering now, and have decided to price into next year's pool, you can choose to take the July basis contract, and lock in the futures anytime up to the end of your 90 day storage window or when you call for settlement, whichever comes first. (negotiate with the grain co on the storage costs for this - the Canada Grain Act rules prescribe 10 days after delivery free storage, but the clock may start ticking on storage costs after that) More thoughts to consider!! Tom