Sign/First Look at Pricing Procedure for New Daily Pricing Contract Starts Today

[charliep]

Just a note to watch for details of the CWB daily pricing contract. The sign up opportunity/first look at actual levels (sample only at this point as the actual pricing cannot occur until August 2).

Details can be found at:

http://www.cwb.ca/en/contracts/daily_price/index.jsp

[charliep]

The calculations on the first daily pricing program (example only at this point up to and including Aug. 1) can be found at:

http://www.cwb.ca/en/contracts/daily_price/pdf/dpc_june0105.pdf

As a note, the sample price for 1CWRS 13.5 is $196.39/tonne (in store port) versus a PRO of $194/tonne and a FPC of $191.22/tonne (both at port). The sample price for 1CPSR is $160.05/tonne (port) versus a PRO of $158/tonne and a FPC (June 1) of $157.92/tonne. Soft white wheat is $194.40/tonne (port) versus a PRO of $176/tonne and a FPC of $176.77/tonne.

You can see the fixed price/PRO at:

http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/fixed_price/2005_index.html

As a comment, the logic/what goes into these prices is still not very visible. A group of northern state US prices (locations of which are not likely to be published) are converted first into a central Saskatchewan price and from there out to Vancouver/St. Lawrence. Will be interesting to see how this process unfolds.

Will be encouraging as many of you as possible to use this program over the coming year (sign up between now and July 22) to get a better flavor of it (even if just 40 tonnes/a "B" train. Nothing encourages interest/knowledge about a program than having money on the line.

[cropduster]

Charlie ,liked your comment about logic of what/how visible the price is.That`s never been and issue with these DONKEYS.Wonder how they got permission from Ottawa to give these prices in the first place?Did Ritter and Co. buy some advertising in Quebec??.Without freedom of information we can`t even check.How CONVIENIENT for the LIBRANOS!!!I did find out tho` how much CWB donated to Reg Alcock`s campaign.And poor Avis was hired based on her `professional` qualifications!!

[craig]

Charlie
Please give more detail re pricing point. If I am in Alberta does my price reflect my freight to the coast. Just don't understand how they can run this system when elevator pricing reflects distance from port.For winter wheat producers in southern Alberta they want something that reflects a price in Great Falls Montana. Doubt that will happen

[charliep]

Craig

Have asked CWB the question. For sure is based off the west coast. As a note, the producer direct sale price is west coast as well (both adjusted to local elevator prices). What will be relevant is to watch this spread (daily pricing contract/producer direct sales) as well as the relationship between western Canadian DPC prices and those in US elevators along the border.

Spread relationships will also be interesting. Up to now, spreads have always reflected the levels in the initial payments. This will be the first time farmers have a look at what should be market spreads. Nobody ever seems to ask about these (perhaps only an ag. economist interest thing) but will have major implications for prices.

Spreads by the way are differences in prices/payments between different classes, grades and proteins.

[Digger]

Charlie I think you are bang on with the spreads. To me this is the key to this program and the way to add value ($) to the bottom line for high grade/px wheat. Why won't the CWB let producers lock in the spread just as they do a FPC or DPC? This is going to open up a whole new can of worms in regards to delivery and settlement at the local elevator level!!

[Vader]

Digger, this contract is based on daily elevator bid prices. Those spreads are volatile and the only way to lock them in is be delivering your grain. The spreads are locked in on the day of delivery just like the spreads are locked in on any other cash pricing alternative.

[charliep]

I note that spread risk does exist and it is the farmer who takes this risk on. The sign up period is June 1 to July 22 with pricing decisions only occurring after August 1.

An interesting question that came to mind when digger asked about high protein/quality wheat is whether the CWB will allow them full control over their marketing/access to the market. An example would be these last few years when western Canada had lower quality crops. The CWB controls access to supplies by customers with the idea of ensuring the highest paying customers are looked after first (i.e. Japan). The definition of highest paying reflects basis and not timing of sales. If a farmer signs a daily contract, will they have full access to the market with whatever grain they choose to sell (including high quality)? Will the right to things like export licenses flow with the daily contract and be assignable to others (i.e. a farmer does the dpc/pds deal and then offers this grain to a local processor/grain company)?

[charliep]

In reading the above, I have to admit to confusing "pricing flexibility" with "market choice". The CWB still controls where western Canada human food and export wheat/barley is sold (i.e. delivered to) and the timing of these sales. The question is the visibility of how these prices are established and in the CWB attempt to reduce risk, how much extra risk is being passed onto to the farmer who chooses to go this route. The program has gone a long ways in looking after concerns of a farmer who wants to sell customer direct but there still is a long ways to go.

[charliep]

The CWB has posted question and answer area on their web site. This information can be found at:

http://cwb.ca/en/contracts/daily_price/dpc_qa.jsp

I note q&a 21

21. Why is the PDS value higher than the DPC ? I thought they were both priced off the U.S. market?

The DPC is a U.S. elevator equivalent ‘buying price’. The PDS is the CWB asking or ‘selling price’.

The PDS reflects the CWB's asking price for sales into the U.S. market to end use customers. The PDS is based off daily U.S. market prices and is comprised of the daily relevant U.S. wheat futures price plus the CWB sales basis.

The DPC is also based off the same daily U.S. wheat futures and a basis prices. The basis offered to farmers will be similar to the basis levels available to US farmers delivered into local elevator locations.

Since the PDS and DPC are both determined using the same daily futures values, if there is a difference in price, it will be a result of differing basis levels between the PDS and DPC. The spread between these basis levels will be the farmer’s cost to access the US market.

[charliep]

Just to high diggers point about spreads, I want to highlight the example levels at the bottom of the daily DPC sheet. The high protein spreads are reflective of old crop but are substantially wider (bigger benefit/higher payment) that the PRO levels. The same can't be said for the lower grades/protein. Along diggers thinking, my thoughts are the benefits of this program are likely to be best for farmers who consistently can grow high protein spring wheat. Less benefit for areas that normally only get a low protein 1/2 CWRS or 3CWRS. CPS/other wheats will be a crap shoot as I am still not satisfied on the direct relationship between KCBT (hard winter wheat that is close to spring wheats in quality) and our mid class wheats (more noodle quality). This inconsistency has worked for fixed price contracts (separate basis and futures) so I would likely still go this route. Soft white spring wheat is a no brainer - just do it.

For those who like to carry wheat over between crop years/select pricing periods, my understanding is you can use the alternative of delivering old crop, putting on a storage ticket and using the daily pricing contract to price out in August. This alternative has been removed for the fixed price contract. Given the DPC prices are below the 2004/05 PRO, you need to hope for a major rally over the next 2 months. The only other one that has promise is high protein CWRS - assuming the $32.05/tonne over for 14.5 protein holds into August. Your risk is you are being asked to sign a contract without any knowledge of the pricing or spread levels.

[timm]

what is the premium for 14.0% CWRS

[charliep]

The CWB doesn't have a 14 % protein in their sample spreads. Will ask the question. Also whether they will be posting protein spreads by tenths. As a note, they will have actual samples that independently graded so they will know.

Again these are only samples at this point with actual values starting August 2.

[charliep]

Protein breakdown by tenths for sure. No response on premium. My guess is that will have a sliding scale similar to the US. That is, something to the effect of $2/tenth/tonne from 13.6 to 14 protein and $4/tenth/tonne from 14.1 to 14.5 protein. That is a 14.0 would be worth $10/tonne over. Will depend 100 % on US market and where they do the protein splits.