CWB Daily Price Contract

[charliep]

I always find it interesting to compare initial payments to expected returns/margin for error to ensure no CWB deficient. I will make Edmonton Alberta based versus port to make the situation more real.

1CWRS 13.5; initial - $89/tonne; July PRO - $152/tonne; percentage - 58.5 %; margin for error - $63/tonne protection.

1CWAD 13; initial - $90/tonne; July PRO - $162; percentage - 56.5 %; margin for error - $72/tonne protection.

1CW feed barley; initial - $25/tonne; July PRO - $82; percentage - 37.2 %; margin for error - $57/tonne protection.

2 row select malt barley; initial - $71/tonne; July PRO - $126; percentage - 56.3 %; margin for error - $55/tonne protection.

You can also start to compare spreads on the initial payments (used in the fixed price contracts) to the spreads in the daily price contract. The initial payment spread between 1CWRS 14.5 and 13.5 is $12/tonne. The spread used in the daily pricing contract for these same proteins is $22.77/tonne. Someone who signed a DPC would be better off by $10.77/tonne in terms of protein premiums. To confuse things more, the FPC contract today (aug. 4) is a $10/tonne premium to the DPC for a 1CWRS 13.5. In terms of 1CWRS 14.5, price decision between the 2 pricing tools becomes a saw off with better protein premium offsetting lower price.

Welcome to the new world.

[charliep]

Once you get the bit in my mouth on an issue like this, it is hard to get me stopped.

I find the extra strong wheat interesting. DPC - $160.32/tonne FPC - $152.86/tonne PRO - $164.00/tonne. You can use this as a signal of likely direction of movement and markets (North American focus versus world). It is also an indication of what type of wheat will move south more easily if the anti dumping/countervail were lifted and from there which would move into the US market under a DPC/PDS.

I also have to note that the CWB still will control market access through export licencing. The DPC/PDS may create opportunities to sell into the US but the CWB will still make the decision as to whether if can occur based on its sales program/forecast customer needs.

[Zaphod]

It's interesting to note that on July 21, the last day you could sign a DPC, the protein spreads were still huge. By the time you could price a DPC, the protein spreads had dropped in half. What are the odds that actual protein premiums at US elevators fell that far in two weeks? So much for transparency.

Also had to laugh when I heard Louise Waldman say in the Western Producer that the CWB's job is to maximize prices "on a per tonne basis". So I suppose if they sell 1 tonne of wheat at a sky-high price, they've done their job.

I checked on the CWB web site and all it says is that they are supposed to maximize revenues for farmers. Last time I checked, revenues were based on price times volume.

It's interesting to note that of their mission, vision and goals, only one line actually deals with returns for farmers. Almost every other one talks about improving the profile or reputation of the board. That's the surest sign of the death of an organization -- when it is preoccupied with navel-gazing.

[btjadenlepp]

I was mad about that halving of the protein premiums as soon as the board was on the hook for pricing too, but according to contacts at informa who monitor u.s. protein premiums regularly, that is indeed what happened in the market, in response to pickup in harvest and high protein in early samples.

i still think the contract is a total crock, designed to protect the cwb and those who pool rather than create any real opportunity, as evidenced by the 'price indications' in the sign up window and the fact you had to commit grain before you could value it. that's just not good risk management in my opinion, but fancy premiums fooled a few into signing up.

note if trying to get out of dpc now, it's possible to assign the contract to another grower who may be interested in opening up to future improvement in u.s. cash prices.

also, i checked the pds price last week and it was about $4/t above the dpc bid for 1-13.5 on the day, for cwrw.