CWB "Buy backs"

[jack]

Does anyone know the actual mechanics of how one goes about a "buy back" of wheat from the CWB? Also how is the price of the "buy back" determined?

[brian]

Tom is probably the best person to answer this, but I'll start<br> Wheat producers who wish to access the US market, and producers who wish to market their Board wheat directly (without the CWB) in Canada, must go through a process to "buy-back" their grain. "Buy-back" is a series of steps that involve selling the grain to the CWB, so that it is recorded in the pool account, and then buying it back. Steps for Buying-back Board grains: 1. To begin with, the producer needs to have a signed CWB delivery contract that has been called for delivery, or available quota acres so that he may deliver grain to the CWB. Thus "buy-back" will often not work in the situation of a plugged Canadian system, because often the delivery opportunity isn't there. 2. Contact the CWB (or an elevator company acting as an agent of the CWB) to find out the cost of the buyback. It is based on the current US cash sales price based on the date of sale and the type and quality of the grain offered for sale. These prices are subject to daily changes. For milling wheat, the cash price is based on the Minneapolis futures market, and the cash trade in that market. Cash premiums are based on prices for milling quality wheat in Minneapolis. 3. Negotiate a handling/administration fee with the agent for services to be rendered (weighing), grading, permit book entry/documentation, cheque exchange, etc.. After investigation of other factors involved in exporting or accessing other markets, the farmer decides whether to proceed. <p> I suggest you call your elevator agent and see what price you could get for some wheat -- and maybe share your findings here. <p> Perhaps Tom knows how much grain is bought back in a given year. I think it is extremely small, because often the market the higher price the producer has found is offset by the cost of the buy back. Also, does the CWB post the daily buy back rate anywhere on their Internet site?

[brian]

Brenda has provided some insight into the "buyback" or producer direct export program. To capuslize, the total value that is quoted is the market value of that product on that day, essentially following the Minneapolis market as Brenda has indicated. A delivery call is required, but there is flexibility if the grain hasn't been called yet. As long as the grain has been accepted under a contract program, an advance call can be given to facilitate the delivery (contact the CWB). To be clear, that means that if you have a Series C durum contract, which was 0% accepted, you wouldn't be able to get the delivery authorization for a buyback. So Brenda's comment that you can't proceed with the buyback if the handling system is plugged isn't quite accurate. After contacting the CWb or your grain co for a price quote, if you want to proceed, the grain co will enter into a sales contract with the CWB and you are the consignee to that contract. Once the contract is booked, then you will get an export license that is specific to the port of exit. A copy is faxed to you, and to the customs port you designated. The company who is administering will create a producer certificate for the amount of grain you deliver to the US, either by agreed to scale weights, unload weights or other method agreeble between you and the grain co. This cash ticket pays you the initial payment, and you get all future payments for that grade and quantity of grain. So you pay the market value, and receive all CWb payments plus whatever you capture in the US market for your product less costs you incur to get it there. Essentially this all is done over the phone and fax and can occur within a day. Make sure that you have a market/price secured in the US as once your grain is out of position, you're pretty vulnerable. The sales contract is expected to be fulfilled within 60 days, so there is some time to execute as well, once the sales value and contract is booked. Hope this helps. This is a great topic - if there are other questions, post them up so others may benefit. Tom

[brian]

You also asked how the price is determined. It will take a little longer than can be covered in this space so I will put together an article for the newstand tomorrow showing how the CWB calculates and how to determine if making the sale adds value to your CWB total payments.