Prices for 2006 crop

[TOM4CWB]

Agstar77;

You are wrong about profitable prices not being avaliable.

Hedges that the CWB can be put on now:

Kansas City HRW Wheat Dec 06; $3.70US which with a decent basis from the CWB should net over $3.90/bu. in Alberta

USDA this week said:
WHEAT: Kansas City US No 1 Hard Red Winter, ordinary protein rail bid was 23
1/4-24 1/4 cents higher from 4.28 1/2-4.43 1/2 per bushel.



Minn DNS Dec 06 Futures; $3.72US which means a $220/t Vancouver Canada fall 06 cash;

06 crop price should be avaliable through the CWB TODAY: $4.70/bu in Alberta.


USDA this week said: Minneapolis and Duluth US No 1 Dark Northern Spring,
14.0 to 14.5 percent protein rail, was 33 1/2 to 48 1/2 cents higher from 4.82
3/4-4.97 3/4 per bushel.



Even Canola at $293/t which should net $280/t to an Alberta farmer is a profitable price.

Recap of fall 06 prices

#1CWRS 13.5 could be offered, 06 crop @ farm gate in Alberta at $4.70/bu

#1CPS Red could be offered 06 crop by the CWB @ farm gate in Alberta at $3.90/bu.

The Canola is $6.35/bu

All of these are profitable prices... and if the CWB did it's job on offering 06 wheat, the Canola would be significantly higher because of the competitive effect!

Canadian grain marketing can only be as good as the weakest link.

Where is the CWB expert marketer, and why isn't every grain farmer telling them to shape up of ship out?

[poorboy]

TOM4CWB,

I would like to see some decent prices offered for 06 wheat as well, but I do not think it is just that easy.

The US futures are a decent indicator of wheat prices in the US, but are they an indicator of how end use customers and the CWB price their wheat. I think that most wheat purchasing countries just pay the going price at time of purchase. They just get an average price for the year, and are not proactively trying to hedge their years demand on the futures. Very similar to the domestic barley market.

So, could the CWB dump 25 million tonnes of wheat sales onto the US futures markets without causing the price to drop dramatically. Because of border issues, we can't effectively deliver against a US contract, so it is not a perfect hedge.

Our problem may not be all CWB related, as much as canadian farmers do not have enough tools for risk. If the Winnipeg futures market was as liquid and large as a US futures market, canadian farmers could do their own pricing for future crops, and we would not even need the cwb to help us.
I assume that most countries in the world are in the same situation as canadians, in the lack of good price discovery. Look at Australia, they seem to flood our canola futures every year and are having an effect on our prices, but it seems to be the only option they have to price their canola.

Rather than bash the CWB always, we need to work with government to get us a system that is large and liquid enough for farmers to price crops for future delivery. Perhaps a trade agreement that allows a permanent open grains border with the US so we could deliver against US contracts, then we could use the markets already availabe. Or perhaps if we started a contract for worldwide exportable wheat, the rest of the world would use it?

In my mind, the problem with the cwb is we think that other countries are committing to price for future deliveries, when in reality other counties are only commiting on taking tonneage of wheat from canada, with it to be priced at the current market on delivery day. I doubt that most customers are interested in commiting to a future price, and the customer is always right.
Just my 2 cents worth, as I sit here waiting for my crops to dry.

[charliep]

Poorboy

I agree with your assessment of the need to improve all pricing tools. Flaxseed futures have been pronounced dead after being on life support for how many years. Feed grain futures volumes at the WCE small. Canola futures also stuggling.

Only thing I might disagree with is Australia use of the futures. I think they are an important factor in adding volume and international price transparency - buyers use it as well. Both buyers and sellers enter the market in forward contracts as almost a part of a Australian cultural thing - risk management seems to get a higher priority (have to be carefull because maybe the grass isn't as green on the other side). The same thing doesn't seem to be happening in Canada in terms of hedging or forward selling. With a 1.6 MMT carryin and likely a 7.5 to 8 MMT canola crop, how many committed sales are on the books for October? What is the start to domestic crush slow again?

Other grains/oilseeds/pulses have issues in price discovery/hedging tools but doesn't seem to get peoples interest.

[TOM4CWB]

Poorboy;

A marketer can bridge the gap between the futures and the cash IF a relationship is built over time of trust and honesty.

THe fact is that the US knows a good chunk of CDN HRS is 3 or feed.

THe price has risen in the US because everyone (buyers) now knows they will have to pay up cause the CWB can't do give aways in volume... because the crop just got short in Canada.

I estimate we just lost 4mmt of 1/2CWRS in the last 2 weeks of rain.

What do you think Charlie?

[agstar77]

Tom4 the CWB could never hedge the amount of grain we produce, it could be more agressive in forward pricing delivery contracts with buyers and insisting on a petroleum surcharge like everyone and his dog is asking of us. If this means losing some export markets so be it , the time of flooding the market with grain,just to make shippers and grainhandlers money is over. The risks in modern farming have just become too great.

[agstar77]

Oh by the way our cwrs is 1/2 but we only had half a crop!

[TOM4CWB]

Agstar77;

Few people stop to think about hedging and the practical side of putting a hedge on.

When a farmer decides to hedge, it is not 2mmt that they are hedging... it is normally 100-500t at a time, even for larger farmers.

The markets can easily absorb this type of Hard Red Spring position, for instance even the smaller Minneapolis in August set a record and traded:

"August 2005 Hard Red Spring Wheat Futures volume recorded the 8th highest monthly volume since the contract originated in 1883. Last month’s volume reached 147,709 contracts, the equivalent of 738,545,000 bushels of wheat."

This is over 20mmt in one month.

For the year:

"MINNEAPOLIS (September 1, 2005)—The Minneapolis Grain Exchange (MGEX) announced today that it has established a new fiscal year trading volume record. Trading volume totaled 1,451,150 contracts for the 2004-2005 fiscal year, which ended August 31. The previous record was set in 2004 when 1,377,934 contracts traded."

This is close to 200 million metric tonnes of Red Spring Wheat traded in 2004-05. Further if the CWB and AWB used this exchange even more, the volume would increase a substantial amount more.

Saying something can't be done, is a poor excuse when by far the majority of the world is already doing this very thing... and for some time!

[TOM4CWB]

Poorboy,
My understanding is that the CWB is using the MGE effectively, and for a large portion of CWRS grown now. The CWB has a director on the MGE; last I heard, delivers against futures hedges on a daily basis now.

Our problem is to get to a cash price, as the pool accounts sell all grain that the designated area grows now, which the CWB handles.

It is the basis between the futures and the farm gate where the CWB refuses transparency; not the futures price itself.

Having a huge pool of grain to sell allows pricing like an 06 foreward program with much reduced risk than to a smaller marketer.

[charliep]

tom4cwb

I won't second guess mother nature. At least what I have seen, most cereals have not been swathed. Comments please. We are all in the process of learning about the new CGC sprout tolerances.

[poorboy]

I often find that in forward pricing crops that I am to focused on what the fall price will be and not focused enough on the big picture. I like to know my basis and futured price and then I usually sell a certain amount through a line company. I would probably be much better off looking at the futures price only an worry about locking in a basis as my crop develops in the field. Most futures swings are way larger than the basis movements, yet I often find that I didn't price because I was offered $10 under canola basis and I thought it should have been $0 basis. It doesn't take much of a futures move to save the $10.

Lately, it looks to me that farmers pricing their crops should look more at trends than a fundamentals. The funds buying is what is really causing the rallys and drops in the market and we should be onside with them. When we hear that the funds are selling heavy, we should be looking close at that and when funds are buying heavily we should be letting it run some and then start to forward price some crop.

So in my opinion the basis is important, but it is the futures price that is most important to watch.

[crusher]

Tom4cwb,

Are Dec 2006 wheat contracts trading on the KC & MGE? Should we hedge ourselves, and do the exchange when FPC's are available next year?

[TOM4CWB]

Crusher;

Both the US$ and wheat futures can be hedged, I really wonder if we shouldn't be looking at 2005 crop first?