How Many Farmers Have Signed Daily Pricing Contracts

[charliep]

Oops. Second sentence/second paragraph from the bottom.

Protein and grade spreads are based off the US markets that are surveyed.

I should also note on the fixed price contracts that the CWB lifts their hedges during the year as delivery months approach/grain sales are made and money deposited in the pool account.

[crusher]

Took a look at the chart of PRO, FPC and DPC and went for a bunch of DPC. Hope a don't get pounded on the grade spread, sure took an ugly hit over the last week. Of course the market is shakey right now and we can't lock in for another two and a half weeks. (I know I could sell the futures and buy back later).

[charliep]

Crusher,

Hope you don't mind if I write down the relevant price information that was available on the day you made your decision.

2005/06 PRO - $109.68/tonne Alberta average ($156/tonne PRO minus $46.32 AB deduction). Payment pretty certain at this time. Suspect you could almost do as well in the domestic feed market.

2006/07 PRO - $122.68/tonne Alberta average ($169/tonne PRO minus $46.32). You will get initial payment plus adjustments and final. Actual number could be higher or lower.

Daily price contract on July 12 - $153.65/tonne ($240.84/tonne 1CWRS 13.5 minus $40.87 3CWRS discount minus AB deduction $46.32). The MGE September futures was US $5.24/bu and the loonie 88.32.

The fixed price contract (if you were able to use which you are not) for 2006/07 would be $151.66. I used yesterday's FPC of $235.98, the 1CWRS 13.5/3CWRS spread of $38 (assuming initial payment spreads are similar to that of the PRO) and the 2005/06 CWB AB deductions.

Implication - Based on the best information we have today, you have an opportunity to put an extra buck a bushel in your pocket (realizing the market is down this morning and could continue/the risk of harvest preasure as the Dakota's put crop in the bin).

Readers must get confused by my Dr. Jekyll and Mr. Hyde personality (suggest using on the one and bad mouth the program on the other). Unless you are extremely bullish and have all cash flow needs covered to December 31, I think you have to use this program. My policy issues are issues of being asked to sign a committed contract without a price being established and the complixity involved in the decision. In this case, why not have a price of $4/bu and let farmers make the decision to take it versus all the other crap (you have to go through the calculations) that is involved with this decision. That would eliminate all the crap/discussion at the end of a crop year as to which one is better/should be priced into.

[charliep]

Still looking for thoughts and questions about the daily pricing contract. Talked to CWB representative and they indicated about 300,000 tonnes had been signed up. I wouldn't delay your decision until Friday.

[WRAPper]

Talked to the one guy at the CWB in the country that I feel is the best at these PPO's, the concern I have on the DPC is where the spreads will be as well as the basis levels off the bat 300000 tonnes will want to trade in the first week of August? That's going to affect basis and grade spreads ,it's Likely a lot of 3 red thats going on the DPC whats the spread going to be, so will a person sit on this DPC until say October. I would believe there will be storage costs on this old crop wheat to be also taken into account( I need to check that this morning whether I'm correct in that assumption) Apart from that I do believe it's worth trying on a portion of Old crop that I intend to roll forward. I'm thinking 50 percent into a DPC and 50 percent into the 07 pool.
One other strategy to consider if you have the storage space is minimum deliver on your 06 contract FPC your carryover and find movement/Delivery in August prior to harvest. It will affect your first contract call by a percentage and result in you having more on farm storage needs but for a buck a bushel it'll take the sting away of cleaning up any grain piles you might have to make this fall.
One last thought on the basis thing the US spring wheat crop is going to have a tough week with heat so thats going to help keep the basis firm (we all are going to share in the heat as well so effects will be felt across the Can wheat crop as well)

[charliep]

Because of the storage cost issue, I suspect most farmers will plan on taking the initial payment/delivering to the 2006/07 pool during the first two weeks of August. You can use the DPC later on but the spreads you use will be on the day you sold into the new crop pool. Spread risk is an issue with the ultimate out the ability to leave 2005 in the new crop pool and use the DPC to price 2006 crop (as you indicated WRAPper).

I have concerns over the next 90 days that movement (as per usual) will shut down ahead of harvest. Everyone (CWB, grain companies, farmers) will have pictures of higher prices and blending opportunities to upgrade 3CWRS wheat to something better. My hope is there is an grain idustry commitment to pricing and moving this wheat during August and September into the current rally. A rally is only theory until a farmer has deposited the cheque for a grain sale into the bank. The lessons learned from 2002 crop year (crop year high prices in the fall and deficits in the pricing pools) should not be forgotten (realizing there are differences between the current crop year and 2002).

Have tried to get conversations going a couple of times but I think one of the most interesting changes the CWB has made is the move to guranteed delivery contracts. The CWB has committed to taking product within a certain time period. You as a farmer are guaranteeing to provide product to the CWB. I think this is a critical change that needs to be made versus everyone sitting around until new crop is harvested and go through the lottery of what gets called forward first. This is a necessity to making the current CWB pricing contracts better.