cwb fixed price ?

[crusher]

Charlie,

Thanks for suggesting DPC - looks like money in the bank. Pretty wild swings today, brief new high for KC, Minnie still a ways off of previous high. What do you think a producer should do? I've got some uncommitted 2 CPS. What is your call on the grade spread? I've put my #1CPS against my FPC and DPC so far. Can get movement NOW on all the CPS. I'm not a fan of the pool and would fix price or basis all of it, except for ugly basis and adjustment factor.

[melvill]

Rechecked the US interior basis graphs. Kansas area spot basis levels for ordinary protein returned to average levels in late August but have worsened since then. Basis levels for 13% protein strengthened to above average during that period but have weakened to considerabley below average since early Sept. Minnie 14% protein have been away below average since early July.

[charliep]

Crusher

Going to do the civil servant soft shoe and admit to not being able to give good advice. Cottonpicken has called me a bear (which I maybe am but am just encouraging discipline/a plan in a rising market which by the way has ran out of gas in the last couple of days). I do recognize the tighter world wheat supplies (compounded by the Aussie situation) as well as a changing domestic feed market (tighter feed grain supplies and the opening of two ethanol plants). My experience however suggests that a bird in the hand (money in the bank) is worth a bunch of birds in the bush (promise of a higher total payment). If I were to carry CPS wheat, I would do nothing on the contracting side "A" series/pricing and instead hold into the spring with the idea of keeping both the domestic market and CWB pooling ("B" series) open as alternatives through the winter/early spring.

Basis levels are likely to stay ugly (what will change over the next 21 days to improve basis levels). Lee and I get asked these questions (hopefully we provide some useful insite) but the real responsibility lies with your marketing agency to provide answers.

I will note the contingency fund topped out in the 2004/05 crop year at $50 mln. Unless there is a change in regulation/process, all the profits (risk factor from the CWB side) from the producer pricing options in 2005/06 and 2006/07 will get deposited back into the pooling accounts. Farmers have the right to ask questions around the basis calculation for fixed price contracts.

[crusher]

melvill,

So then I can ignore the adjustment factor on my pre August 1 futures first contracts - good news! I was wondering why there wasn't a charge on the basis I locked in last week. Correct me if I'm wrong, but I best be locking in the remainder of my basis before they widen out.

Also if DPC is priced off of interior elevators, is there a reasonable chance basis may narrow once the world starts coming for U.S. wheat. Or is the basis small potatoes compared to the future price?

[TOM4CWB]

WD9;

The Agri-ville Mayor doesn't allow those links; he took one off the other day...

[melvill]

Crusher, your futures-first basis contracts signed before Aug 1 are "safe" from the basis adjustment.

As for the ones that haven't been locked in yet, are you talking CWRS or CPSR. For CWRS, your guess is as good as mine on whether you should lock in the basis now before it gets worse. I'm with Charlie on this issue. The CWB's basis process is not very transparent so, for me, it's noteasy to make able to make any recommendations on future strategies. Given that, my gut reaction is to wait 'till the last minute unless it the basis improves by $4 ot $5 per tonne all of a sudden.

CPSR basis levels are better now than they were in late August but they're still no screaming h__l. Again my temptation is to wait and see.

However, I may change my mind a day or two before the next PRO on Oct 26.

For DPCs both basis and futures are important, but if futures rally, I'd be carefully watching northern U.S. interior cash prices to see if they follow along. They may not.