Thoughts on CWB Fixed Price Contract - Current plus Upcoming

[charliep]

Any thoughts on both this last years CWB fixed price and basis contracts? How many of you tried the program? Thoughts about how it worked for your businesses situation? Improvements? I haven't seen anything official yet but the jungle telegraph (rumor mill) is suggesting changes/expanding the program to other wheat classes. What will you be looking for in the new program? I will be doing a review of the relationship between the CWB pool return outlooks and the converted MGE March futures prices. I will post an article this next week on this topic.

[TOM4CWB]

Good topic Charlie!

Did you notice that on November 29th 2000 the Minneapolis Spring Wheat contract had a record day for trading this Contract?

Could this be because this was the expiry of the CWB April and May basis contracts? (a note for this time, don't do this again please!)

We used these contracts extensively, and other than a messed up uncompetitive basis, they really worked well!

I am really disappointed that they come out so late in the year.

In Canola we usually have to price in November or Dec to get real good carry out of the market.

We are still not even sure the contract details yet, so how can we hedge our wheat?

The CWB could really provide a useful service if they would start earlier contracting programs!

I guess they are to busy fighting farmers to do their job!

[chaffmeister]

TOM4CWB:
If you're looking for carry in the wheat market (like you do in the canola market), you don't need to wait for the CWB's contracts to come out, do you? You can short the backend of the wheat futures market (i.e. Dec of next year) much earlier than April/May when the CWB offers their basis contracts.

[TOM4CWB]

Chaffmeister,

You are right, as long as the basis offered by the CWB allows this hedge to work.

The other concern is that if I short the futures, and the wheat market explodes up, then I need mega bucks in my futures account to cover the margin.

With Canola, none of my assets are tied up, I am 50% sold with only the obligation to deliver Canola next fall.

The CWB throws another unknown in when they refuse to set the grade spreads between the kinds and grades of wheat.

With my Canola, we can lock in grade spreads now, another advantage the CWB refuses to work into their program!

[parsley]

The CWB is looking at offering the fixed price contracts and basis contracts on all classes of wheat except durum. The details of the program are being finalized but should be out shortly. Options for feed barley are being considered, including the use of the Guaranted Delivery contract and payment option that was available earlier this year.

The CWB Board of Directors are also interested in getting these programs out sooner, and improving the flexibility and availability, which should meet with the approval of some of the writers to this thread.

More details as soon as they are finalized...

Tom

[parsley]

chaffmeister and Tom4CWB, thanks for your long detailed explanations on contracts....and thank you for the time you've taken to clearly enlarge . One can really learn a lot from you guys...appreciate it.