CWB Basis Contract, Charlie?

[nw9flynn]

CharlieP,

This spring I signed up 100MT of Hard White Wheat with a basis contract at $0.64/bu. When would you recommend locking the rest and what would you recommend for a target price with the board? I was hoping this spring to hit
$5.50/bu

Has anybody else do any basis or fixed price contracts with the CWB this year?

[melvill]

Charlie is away battling mosquitos on a canoe trip in Manitoba. I've heard they don't have to just canoe in rivers, streams and lakes . . . . .

nw9flynn, you didn't say what month basis contract you have. That's important because it gives me a timeframe for pricing the futures side. You hinted that you were hoping to hit $5.50 this spring. Does that mean this spring (2005) or this coming spring (2006)?

Once I know where you sit, I'll make my suggestions.

What are others thinking?

[nw9flynn]

The basis is for Dec.

This spring when I locked it in I was hoping to get a final price of $5.50/bu once the futures price was locked.

Any ideas?

[melvill]

Here's the way I've got your situation figured - forgive me, I've got to work in 4/tonne.

Dec Basis signed @ $23.50/t over Dec Minneapolis futures. You said you wanted at $5.50/bu. which is $202/t. That means that the Dec Minni futures neads to be at least $178.50 to give you $178.50 $23.50 = $202/t.

Yesterday's Cdn$ equivalent of the Minn Dec closed at $160.30 which is short of your futures goal by $18.20/t or about $.50/bu.

US wheat futures prices have been supported at higher levels than could be the US supply & demand situation by the run up in corn prices. Now that the corn belt has received some moisture and more is forecast over the next week or so, corn (and wheat and soybeans) are heading downward.

So what should you do? It depends on your "chicken factor". In the short-term, corn and wheat prices are headed down. If there is good rain in the corn belt over the next week corn and wheat prices are headed even lower.

And where is the Canuck Buck headed? It has made a good run up over the last 8 or 10 trading days. With today's small devaluation of the Chineses currency, the US dollar may take a further hit.

[melvill]

Darn. First line should read $/tonne not 4/tonne!!! Argh.

[nw9flynn]

Melvill,

your right it all does come down to the "chicken factor". I don't have alot of good news coming my way that would point to a rally. That being said there is no point in locking in a price just to lock in a price. I set a target price with the CWB at 178.50/tonne. All I can do is wait and watch and maybe revaluate the target in 2 weeks or so.

I do have one comment about setting a target price. The futures price that a producer locks in is the closing price that day. So if it does not close exactly on 178.50 the target does not trigger. I wanted to set a range $3.00 plus or minus of 178.50 and if it closed within that range than it would trigger. However this option I was told will not be available until '06.

What has everyone else set the TP at?

[melvill]

Another thing you could do, if you are not happy with a price before the Dec basis must be locked in on Nov 30, is roll the basis forward to March. Of course that will mean the the combination of wheat futures and Canuck Buck will have to be higher because the March basis is weaker.

I'm not generally in favor of that, however, since my experience is that producers will wait and wait and wait and, perhaps, even roll again waiting for a price that may never come.

Good luck. Oh, by the way, keep the thread up to date on what you do. It'll be a good learning experience for everyone.

[charliep]

Only comment is that you can put your pricing orders in MGE Dec. futures/do an exchange for physicals with the CWB (see http://www.cwb.ca/en/contracts/forms/fpc/2005-06/wheat_exchange.pdf). Your risk factor becomes the looney.