Minn. wheat jumps up Why?

[sawfly]

is it the drought in texas and oklahoma or something else ?

[melvill]

My understanding is that there has been quite a bit of short-covering (buying back sold positions) by the funds and other larger spec investors recently. The reasoning is that a number of commodity index funds are thought to be going to enter the market.

The interesting thing that I just learned is that commodity index funds are "long-only" investors. If they were to enter the market, they'd come in with huge dollars and, if they only enter the market on the long side (rather than short), that could shift the market significantly as it did with soybeans last fall.

Anyone else know much about commodity index funds - info websites, etc.?

[Jman]

Same reason why wheat futures drop when it rains in downtown Chicago during spring and summer.

CNN and FOX News are currently running stories of the the devestating grass fires in that region, and hedge funds are take a spec postion on it, assuming the HRW crop will suffer.

Just the market doing what it is supposed to do.

However, At these current market levels, I'll wait for a while before shorting/hedging the wheat market for my 2006 production. Still too low.

[sawfly]

at the end of october Lee or Charlie thought a march basis contract might be a good idea. i took a 500 tonne CWB basis contract on july minn.( just a learning expereance)
would be interesting to see your stratigy on when you would price or roll on the march.

If we were to have a decent rally in the wheat,any discussion of the best methods of locking in uncontracted 05 , (No. 2 3 HRSW) and some 06 production.

is there enough tools in the CWB or do i prettywell have to open a tradeing account.
any comments Thanks

[TOM4CWB]

Sawfly;

The CWB normally takes the carry in the market and keeps it for the pools. This is why the prices normally are depreciating as the contract gets close to maturity.

Normally with a reasonable basis, if you price above 80% of the price on average for the year... the expectation should be that should be what you get in all fairness.

With CWB PPO contracts often this doesn't happen. There is some convergence some times...

All the best in predicting the 2006 market... for this is what is required to "win" a high price from a CWB PPO.

IMHO If you can predict the 2006 Minn WHT market... guess what... a futures account is a whole lot simpler to cash profits from hedge gains... plus you get the better basis from the CWB pool.

Hope this helps!

[Jman]

I dont know where T4CWB is going with the CWB taking the carry on futures months, but I generally agree with him that you will do better with a pool basis (i.e stay in the pool accounts), and take a personal short position against your 2006 production on the side with your own broker.
You may not get the highest basis, but you wont get the lowest, and you will not be sunbject to CWB pricing damages should you suffer crop failure.

But on the other side, to receive a price that is better than average, some risk, and good risk management is required:

As for what to do with your current un-priced CWB basis contracts, you might want to evaluate whether you are at a profitable level at these futures values.

If mother nature was kind to you this year and provided you with a large crop, perhaps you might want to do some pricing at these levels. Rolling a basis to July 2006, and waiting for the highest price of the year, can leave you on the ropes begging for mercy should the weather scares disappear.

Traditionally some of the better pricing opportunities occur between December - March (check some charts). Do some scale up selling, CWB contracts can be priced in 20 tonne increments, so do a little at a time. Only a good crystal ball will provide you with the ability to lock in the highest price of the year.


By the way, keep an eye on the CWB basis and fixed price contract for 2006. They should start on the last week of Feb 2006. If the futures were to surpass the US$ 4.00/bu mark and the CWB were to post a $25- 30 over basis, you might considering locking in both the basis and futures on some new crop.

If the CWB basis stinks (ie under $25), but the US futures trades over US$4.00/bu you might want to lock in the futures only whith the CWB. Should the futures market later soften, the CWB basis will stregthen later into the summer/fall.

Winter wheat growers should be keeping an eye on the CWB BPC and FPC contracts for 2006 pricing. IF KCBOT trades above$4.00/bu on Dec 2006, and the December 2006 CWB basis is better than $0.00/tonne you might want to price some at these levels. Again if the CWB posts a poor basis, then just lock in futures, and let the basis ride until later into the summer/fall.

I might also consider using the CWB's Daily pricing contract, the one that follows the US cash markets. I'll keep an eye on the US cash basis bids later this summer. If I think the US will have a significant premium to that of the CWB PRO or FPC, Ill choose to contract some tonnnage towards the DPC.

Using 2005-06 as a measure, the Daily price wasnt worth it, that you would have been better off locking in a regular CWB basis contract instead. On average, the US cash prices have not been very strong this winter.

I'll hold off on this one though until I'm confident that I will have higher quality grain to deliver in 2006, as the US market typically is a premium market for milling grade, high protein wheat.
(I dont want to have to sell 3CWRS under this program), it better to be sold domestically or as 3CWRS through the board

[sawfly]

Thank you for your insights .
that is exactaly what i was looking for, now i have a lot of homework to do.