CWB Monopoly Value FPC vs DPC

[TOM4CWB]

Charlie and Lee;

I just spent some time... I am afraid wasted time... studying the comparisons between the Fixed Price Contract (FPC) and the Daily Price Conract (DPC).

#1CWRS 13.5 June 23rd 2005 for delivery in 05-06 CWB crop year:
DPC $199.83
FPC $192.18
PRO $196.00

#1CWES
DPC $168.67
FPC $160.52
PRO $164.00

Charlie and Lee... I have taken my #1CWES and got the #1DNS 13.5 price... no problem... for a wopping $39.31/t discount for delivery to the CWB system (CWES FPC vs CWRS DPC values).

AND

I am baffled how I am to be reassured that a discount of $7.65/t between the FPC for June 23rd and the DPC;

both for the same day and delivery period...

Is going to convince me that the CWB monopoly is gaining me any value!

The US farmer can get a wheat cash price... any day... without a foreward committment of risk for their farm:

Can I?

NO

I must sign up by July 22nd to get a Cash price... and risk the Feed WHeat discount CWB pricing extracts.

PLUS:

The US farmer is stuck with rail freight much higher than we have here in Alberta... It has been up to $25/t more for US growers in Montana VS Lethbridge... all to the benefit of the CWB Monopoly.

So comfort me Charlie and Lee... where does the CWB Monopoly extract a premium over US prices at the farm gate on our farms?

[charliep]

Neither Lee or I work for the CWB so it is not our role to justify their mandate. I can only comment the different producer pricing options make the price comparisons to US markets easier to make and farm managers can then come to their own conclusion.

I am still encouraging farmers to try the program this year even if it just 20 tonnes. As indicated in the past, I think the people who will benefit the most (potentially because I don't know how the system of spreads will work) is growers who get 1 or 2 CWRS with protein over 14 % and soft white wheat.

The other group are individuals who want to sell to the US. The risk here is the spread between the daily pricing contract and producer direct sale price (both at the base grade and spread level).

I note the Canadian Grain Commission discussion paper has effectively propsed going to four grades of wheat with CWRS and CWAD remaining as today but the other classes lumped into a other red wheat and other white wheat. The only way for one of the alternative wheat to move through the system with its variety/quality attributes under this situation would be to run an identity preservation program. Could a pooling system work under these rules? At the very least, I think the CWB would have to separate CWRS from the other classes in separate pools.

What are others thoughts?

[charliep]

Perhaps I should also point out the daily pricing contract prices on the web are examples only reflecting current cash prices and not new crop. You will look at the actual DPC prices until August 1. You need to sign up prior to July 22 to participate in the program. My understanding is that you will also not be able to pre book a DPC price ahead of delivery. This means the system is effectively tied into contracting/contract calls.

[TOM4CWB]

Charlie;

The FPC, DPC, and PRO are for 2005-06... which IS new crop, isn't it?

Using Dec/05 Minni Futures to calculate these CWRS prices would indicate a new crop market, wouldn't it?

I see the US PNW NS/DNS 14 price reported June 14/05 for Oct/05 PNW shipment is $180/tUSD and a HRW 12 is $159/tUSD.

At a 1.22 Dec 05 C$ conversion this makes our 1CWRS 13.5 worth $218/t and our 1CPS Red worth $193/t new crop price.

Now Charlie, these numbers indicate we are we still short $20/t on CWRS and CPS... even when the CWB makes the claim they are matching US sales.

WHERE is the CWB monopoly premium?

[TOM4CWB]

Sorry about the typo... that USWA report on PNW prices was June 24/05... not 14th.

[Zaphod]

The CWB will argue that the US is a premium market and the pools don't reflect that full value. But then the question becomes: Why aren't the DPCs at a bigger premium to the pool? Unless of course, the CWB manipulates the US values before they post them.

I called the CWB and they told me that the DPC prices and spreads are based on old crop values, not the new crop. After a little surfing on the web, I found that new crop values are at an inverse. If that's the case, once the CWB starts releasing new crop values, they could look really ugly compared to the pools. Too bad by then farmers will have already committed tonnes to the contract.

[TOM4CWB]

"I called the CWB and they told me that the DPC prices and spreads are based on old crop values, not the new crop."

I don't get it!

How can December 2005 futures reflect 2004 harvested wheat? The US spring wheat harvest for 2005 will have been completed by September for by far the largest majority of the 2005 crop. US 2005 Winter wheat harvest is finished by the end of July for the most part.

What is the CWB talking about that these prices reflect old crop!

Near by PNW prices for old crop 2004 NS/DNS 14px wheat is worth $12/t more, @ $192/tUSD. Gulf of Mexico is at $212/tUSD for June/July 05 delivery.

Someone, please tell me what is going on!

[Zaphod]

You are wasting your time trying to figure out how the CWB came out to their price. Just because they list the MGE Dec price doesn't mean that contract month has anything to do with the calculation. I know it's stupid, but hey.

I worked out some of the spot prices I found in North Dakota and Montana and backed them off to Portland using freight rates posted on the BNSF railway web site. It actually worked out within $5/tonne to the CWB prices, but that may have been more luck than brains.

Like I said before, new crop RS wheat in the US is at about 40-50 cent/bu (US) inverse right now. So when they start posting new crop prices, anyone who has signed up one of these DPCs is going to get shafted. But that may be what the CWB is hoping for so they can tell people what a wonderful job they are doing.

[TOM4CWB]

Zaphod, Charlie;

If in fact the CWB is quoting contracts for 05-06 new crop... while pricing off old crop 04 harvested wheat...:

What exactly is this June 1st to July 22nd CWB "Trial" pricing excercise supposed to prove? I don't get it!

Can the CWB actually quote these prices as representing 05 new crop wheat when in fact they are old crop 04 wheat prices?

Are we supposed to go back and instead look at what 04 wheat through the fall 04 FPC should be worth today?

Why if this is the case... doesn't the CWB state this... if it is in fact the case?

WHat's up Charlie & Lee? Isn't it your mandate/AB gov's purpose to help us figure out what's up with CWB pricing programs and options?

If this is a deception... shouldn't all Alberta wheat growers be alerted to this situation CHarlie and LEe?

Or what have I missed?

[charliep]

The caveats to the examples are posted on top of the daily pricing contract posted price sheet. Yesterdays is below:

http://www.cwb.ca/en/contracts/daily_price/pdf/dpc_june29.pdf

I have also done a call of the land with Jack Howell:

http://www1.agric.gov.ab.ca/$department/newslett.nsf/all/cotl7581

My experience is the more civil servants/government push something, the more backlash there is/the less willing farmers are to consider. You have raised some good points (as have others). I can only highlight some of the risks of the program and encourage farmers to try at least some (even if 20 tonnes).

An area that may work this year is to price old crop deliveries. The 2004/05 1CWRS 14.5 protein PRO is $220/tonne (port) with an initial payment of $199.55/tonne (port). The DPC yesterday was $188.55/tonne (port) for 1CWRS 13.5 protein and a 14.5 protein premium of $32.75/tonne or $220.30/tonne.

As a note you are $14.55/tonne worst off (assuming prices and spreads stay the same) by using the DPC for pricing 1CWRS 13.5 protein versus selling into the 2004/05 pooling year.

[silverback]

You can't seriously try and tell us that the VAST majority of Alberta grain growers do not want a way to market grain outside of the CWB if they want???

As soon as they proposed that idea everyone I know was excited about finally getting out from under Ottawa's thumb. I guess you are saying that the Choice matters campaign was just a way to keep farmers happy through another election.

All I can say is that I am getting very tired of the tories and their big promises or ideas, only to see them wither away when Ottawa slaps their wrist and tells them to be nice to big brother.

[charliep]

Silverback

Alberta government is still committed to market choice for wheat and barley which includes a CWB alternative. That could be Alberta only or western Canada. Work still continues although it may not be as visible/fast as you would like.

Even in the CWB environment, there are new marketing tools. They are actions a farmer can take so they need to be reviewed and decisions made about them in their marketing plan.

I agree with Tom4cwb on the problems with being forced to sign up on the DPC program prior to having full knowledge on pricing (including the issues around how class, grade and protein spreads will be determined). Many (including myself) have expressed these concerns directly to the CWB and through other channels.

Hopefully the commodity area achieves some balance of policy and marketing decisions.

[ALLFARMER]

What ever happened to the Choice Matters campaign? I had visited their web site at one time.

[TOM4CWB]

Charlie;

I thank you and the folks at Alberta Agriculture for working on this issue.

It certainly appears that the only way the CWB Directors and management will honestly face the real needs and aspirations of Alberta Farmers will be if another option in marketing is provided... the issue here is a case in point of serious mismanagement by the CWB.

I would LOVE to be proven wrong... and see the CWB repent: and change their ways...!

WHen I mislead someone and cost them big time... IF I have integrety... I have an obligation to restore that party and pay up.

NOT at the CWB... if a person objects to the "Monopoly" especially.

I still have outstanding bills the CWB owes... and it refuses to pay. Only a monopoly management team would attempt to SPIN things the way the CWB does today...

AND be deceived into believing they can get away with it!

[silverback]

Commitment and Action are two different things.

Until the Alberta Government can show me that they are actually taking action instead of wasting money on brochures, surveys, and web sites, I will look for someone who will actually do something!

It is not my intention to let my Grandchildren go through their lives not having some sort of freedom to sell the production from our farm as they wish.

It is obvious that as long as Ontario controls the federal gov't we are going to have the CWB. It is also obvious that as long as the tories are in Alberta we will get empty promises.