CWB loan sharks

[charliep]

I note the CWB annual report has an section that outlines the repayment schedule (page 65) with payments of about Cdn $492 mln in 2005/06 (current year) and increasing to just under Cdn $700 mln in five years (2010/11). This debt should be paid off in 7 years if my math is right.

[charliep]

I apologize for 3 posts but people ask good questions/gets me thinking. The question is what currency the debt is held in with the countries (names are Algeria, Brazil, Egypt, Ethiopia, Haiti, Iraq, Jamaica, Pakistan, Peru, Poland, Russia and Zambia) - likely US dollars. If the debt is held and paid in US dollars, who takes the hit on the higher values loonie?

I note from the 2003/04 annual report that Canada wrote off debt to some of these countries. The has also been other re-scheduling of debt as a result of international agreements.

I highlight the above to indicate there is lots of other risk to these debts other than the principle payable. The Canadian government likely isolates the CWB from these risks.

[chaffmeister]

Charlie:

The CWB financial report indicates the amount of debt in US funds. I assume all other debt is in Cdn because they don't indicate otherwise. If you look at item eight in the notes of the financial statement, the CWB indicates the amount of US-dollar denominated debt it has taken out. I am left to assume that they (correctly) matched the outstanding US-dollar asset (accounts receivable) with a US-dollar liability (debt). This way they would be hedging the forex exposure on these credit sales appropriately.

They sell in USD but on credit so they don’t get paid. So they take out USD debt to cover the cash flow requirements. I assume the US dollars received with the debt instruments is converted into Canadian dollars just as they would had they been paid for the grain directly.

[TOM4CWB]

Chaff;

For forex and loan swaps straddles... what kind of commissions are involved?

For every $1000. what would the transaction fees be to the brokers providing the services?

[sawfly]

great information on the debt,and looking at some of the countries ,it would seem not that different than amercian food aid programs.
algeria egypt good customers thru the years,deserve credit . Haiti ethiopia probably more along the line of food aid.

[charliep]

sawfly - agree with your comment on the US and the way they provide aid. Made their pulse industry work for works pre including in the farm bill (now they produce too much so this doesn't work).

You also have to look at customers.

Algeria - currently a commercial customer that pays cash (could be wrong). Old debt from the state trading days.

Egypt - Canada doesn't sell there anymore. Europe and US duke it out with issues around the middle east a major factor.

Haiti/Ethiopia (you can add others) Agree on the need but with the comment you have to look at the needs of farmers there and the impact you have on their livelihood a consideration in aid payments (i.e., they shouldn't be dumping grounds for countries that export). If Canada is going to provide aid, lets call a spade a spade and ask the taxpayer to pick up the tab. Taxpayers (including farmers) will support this.

[Vader]

Charlie, I think you found the answer to your question. Russia (and Poland) are making both interest and principal payments.

Prepayment involves more than just the CWB. Other nations have supplied credit and are part of the Paris club. I believe that all of the players would have to be consulted. The reason the Paris club was formed in the first place was because some players were nervous that there might be preferential treatment by some debtors.

There is not cost to taxpayers unless these countries defaulted. The former soviet union broke up and the debt carried forward to Russia. Russia is now looking rather stable due to oil reserves and is highly unlikely to go into default. They will pay off this debt over the next 7 to 10 years as Charlie indicated.

The "asset" as it was referred to, once the debt is retired will cease to exist, and has no other possible application.

Further the ability of the CWB to generate revenues from this "asset" do hinge on the borrowing status of the CWB which is due to be severely impacted as a result of the trading away of the CWB's guarantees on borrowing through the WTO process. This loss of the guarantees will have more effect on farmers than just this portfolio. The purchase of the entire western canadian wheat and barley crop is financed by the CWB. When the CWB's cost of borrowing goes up farmers in western Canada will be negatively impacted.

[charliep]

Just a clarification about the last point. The CWB does not finance non board crops. It also does not finance farmer inventory. What it does finance is the grain delivered to the elevator system (which a farmer is paid an initial payment at 70 % of the PRO) all the way till the time the export or domestic buyer pays. Using 5 mln tonnes in the system and $200/tonne, that would be about $1 bln. If the CWB goes to more regular adjustment payments during the year after government guarantees are gone, then this borrowing may go up somewhat but so will the need for things like shorter pooling periods. Nothing different with what any other grain company does. Given the CWB doesn't own assets, also a reason to have a reserve/contingency fund.

[chaffmeister]

Just a point of clarification. The CWB doesnt pay for grain until it''s received (unloaded) at a terminal or at a North American customer. The primary elevator companies finance the inventory in the primary elevator system.

[charliep]

I didn't realize when grain companies are paid. I assume the grain companies are paid interest and storage while the grain is in the elevator.

[chaffmeister]

Charlie:
Right on. Check the pool accounts - under Direct Costs there is Ïnventory storage" (which now includes storage for both primaries and terminals) and "Country inventory financing" which is interest paid to elevator operators for primary elevator inventories.