I just got the CWB's 04/05 annual report and saw the blurb about the contingency fund on page 46. Somebody may have already mentioned this, but I was stunned to see that the Board took $7.5 million tonnes of "profits" from the non-pool pricing options and dumped it back into the pools.
Apparently, the contingency fund can only have a maximum of $50 million and when it hits that level, the excess goes into the pool. Apart from screwing the guys that use FPCs and DPCs, it tells me that the CWB has consistently skimmed too much basis on all of these contracts. If they hedge the wheat when farmers sign the contracts, then the only "profit" to be made is on the basis. I understand needing to take a bit of protection for basis risk, but this is ridiculous.
In total, they made a surplus of $35 million on the non-pool contracts. $27.5 million went into the contingency fund to top it up to $50 million and the leftover $7.5 million went into the pool. Crunching the numbers, the total surplus on FPCs and BPCs works out to $27.14/tonne or 74 cents/bu. Just the $7.5 million that got dumped into the pools works out to $6.40/tonne or 17 cents/bu.
Now look at the basis levels posted for 2006/07 contracts and you can see that the pools are poised for another bigger windfall off the backs of guys who use these contracts. Unbelievable!!
Apparently, the contingency fund can only have a maximum of $50 million and when it hits that level, the excess goes into the pool. Apart from screwing the guys that use FPCs and DPCs, it tells me that the CWB has consistently skimmed too much basis on all of these contracts. If they hedge the wheat when farmers sign the contracts, then the only "profit" to be made is on the basis. I understand needing to take a bit of protection for basis risk, but this is ridiculous.
In total, they made a surplus of $35 million on the non-pool contracts. $27.5 million went into the contingency fund to top it up to $50 million and the leftover $7.5 million went into the pool. Crunching the numbers, the total surplus on FPCs and BPCs works out to $27.14/tonne or 74 cents/bu. Just the $7.5 million that got dumped into the pools works out to $6.40/tonne or 17 cents/bu.
Now look at the basis levels posted for 2006/07 contracts and you can see that the pools are poised for another bigger windfall off the backs of guys who use these contracts. Unbelievable!!
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