CWB Wheat Grade Spreads

[TOM4CWB]

Charlie;

The PPO spreads between grades is really got some folks down... what do you think... did the CWB over do the drop say between a 1-13.5 and 3CWRS?

I note the final spread for 04-05 just announced in the finals was $1.05/bu.

The spread is $1.17 after the last Initial Price increase.

Really the question becomes:

1. To be fair, shouldn't the CWB hold back a few cents/bu and make a grade basis adjustment after finals are determined?

2. 04-05 was an awful year for low grade wheat... how could the spread be worse this year than last... when we have more high grade and less low grade to impact the market with?

3. When the CWB knew the spread was 1.05/bu 4 months ago... why were the 05-06 initials set the way they were in the first place (too little spread historically)?

[charliep]

Good questions for the CWB. Dark northern spring wheat protein premiums have been wider than normal as have premiums for non fusarium wheat (keeping in mind the MGE delivery specification). Both these items influenced the basis in the latter days of October - close to $38 over for CWRS wheat.

A comment is new programs will force the CWB to be more accurate on their spreads. You can monitor the spreads on the daily pricing contract both relative to US ones as well as those in the PRO/initial payments/FPC contracts.

Ultimately, this will force the CWB into daily cash pricing. The only discussion will be whether an alternative within the current single desk structure or in a competing in an open market that operates along side but totally separate from the CWB.

How many follow price spreads used in CWB? This is one of the areas wh

[charliep]

Too sleepy/fast on the send. I will corrent both last paragraphs.

Ultimately, this will force the CWB into daily cash pricing. The only discussion will be whether an alternative within the current single desk structure or competing in an open market that operates along side but totally separate from the CWB.

How many follow price spreads used in CWB?

[TOM4CWB]

CHarlie;

This is VERY specific to this fall and PPO contracts... as now the chicken has come home to roost...

1. 80% acceptance on a FPC... now what happens to the person who contracted and had all the grain in the bin... yet can't deliver now as the CWB did not accept it?
2. The folks with 3CWRS are livid as they thought that the spread from 1-13.5 CWRS was locked in from months ago... now to find out they are thousands of dollars on future delivery of this grain... blind sided with no clue that the spread was not locked in!

3. The spread part of the PPO FPC was not even on the sign up portion of the sign-up page... but is hidden in the terms and conditions fine print...

Some folks are feeling ripped right off!

[charliep]

The spread issue has been a risk factor in the fixed price contract all along. Both Lee and I talk about this issue when we discuss with farmers. This is an issue in non board crops as well but many times a discount schedule is negotiated at the time of signing the contract.

IMHO, the answer to this problem is to move CWB forward/cash pricing away from the concept being tied to initial payments/a relationship with the PRO and towards the daily price contract/spreads based on the market. There should be methods to lock in spreads ahead of delivery.

The big issue from the CWB side is how they cover risk to the pricing pools. The way they do it now is to pass this risk to the individuals who use the producer pricing options. There should be better ways of sharing and managing.

What are others thoughts?

[northernfarmer]

This definitly caught me off guard. I lost close to $9,000 because of the spread change - now tell me, whose interests are the cwb protecting? Why would I the producer continue to risk my a$$ participating in these contracts? Between basis manipulation, to things like what happened here, it really tees me off the the cwb feels it can play producers like this. And it is not like I had a choice in the matter, I had hwsw signed up on fpc and bpc contracts, and they never called for it yet. So tell me why I have to take a further loss on my production? They can manage grade spread risk all they want, but it is the producers a$$ that is hanging out the window with absolutely nothing they can do.
Buy your contract out, they tell me. Oh ya, forgot to mention though, the contracts you did a good job on and are in the money, ya, we will take those off your hands and not give you any credit for them. But we want you to pay the difference out on the contracts that you are on the wrong side of.
If a grain company said that to me I would be out the door, never to return.
This is one more nail in the cwb's coffin.