Frusterating Basis

[lakenheath]

I have asked the question about what drives this mysterious basis and nobody (not even CWB officials) can tell me. All I know is that it seems like when the markets are rising the CWB basis is falling. Seems like it is just an easy way for the CWB to cover their ass on the FPC payment option.

[charliep]

I should likely leave since you would phone me up if you wanted the discussion with me. For purposes of getting others involved, I would note that the fixed price contract is established off the monthly PRO. Because of this, there can and are wide swings in basis around the 4th Thursday of every month.

Why are basis levels much poorer than normal? A good question for the CWB that needs to answered - particularly after the amount of money that was added to the contingency fund last year and the depositing of money from the producer pricing options in the overall pool account.

More visibility and openness around process is a necessity in how the producer pricing options are operated. Perhaps the same argument could be made for open market crops but at least they relate to an actual price that can be researched/found out versus a relationship with an overall average price that is nebulous at best.

As the producer pricing options move forward, I am a much bigger fan of the daily pricing contracts (with all their warts) than I am of the fixed price/basis contracts.

[charliep]

I also note the new column on the fixed price contract daily quote page.

Adj Factor

This something you need to be aware of and monitor. I suspect this will take out volatility in basis as well (a counter weight if you like).

The value to date here is zero which in I think (CWB types will have to help me) is an indication that very little if any new crop has been sold.

[melvill]

Charlie, it seems to me that the CWB basis adjustment factor would always be 0 (zero) until the first business day in the new crop year - August 1 this year.

[charliep]

Thanks for reminding me Lee. We will see how this changes tomorrow.

Initial payments today and discussions with someone about last years contracts reminded me about spread risk as another item to follow. Let's see - basis risk, adjustment factor risk, spread risk. Elements of this risk are in open market crops. My issues is much of the CWB program risk is self generated around artificial deadlines.