Daily Price Contracts CWB

[kamichel]

Seems some farmers made some really good money on the daily price contracts this year. To me seems high risk because it is
signing up tons without a price. ONe can sign up tons from june 1 to july 31. Then one can start pricing after aug 1. Seems to me the CWB give the daily price contract holders all the good sales oportunities this year. I understand it can also go the other way, if the CWB does not give good prices it could work the other way, hmmm, not sure I got this all right. Seems to me the less risky would be to price my SWSW wheat on the fixed price but I notice some people that had the daily price contracts priced their soft wheat up to 5 dollars per bushel net to producer. Unsure what to do, what is other peoples take on this?

[charliep]

I would use both programs but for different reasons.

I would use the fixed price contract to price crop I plan to deliver off the combine (or perhaps the CWB will allow me to deliver). Pocket spring and summer rallies and generate the maximum amount of cash flow in the fall. Still has the flaw of using initial payment spreads but what the heck - no one else cares including the CWB.

I would use the daily pricing contract as a positioning tool for additional sales starting in the fall. Has been (as you note and as is demonstrated in the historical pricing graphs on the CWB website). Pricing and grade spreads are more visible as result of being directly related to northern tier US cash markets (actual calculations are still done by the CWB with no transparency).

This strategy would be developed around your marketing plan and individual financial needs. Still don't know volume (500,000 tonnes last year) but would make decisions around DPC early - suspect will sell out again.

[kamichel]

I was told that the daily price works more off the local North American Market, and the fixed price works more off the world price. Confuses me that there can be these two systems offered by the CWB. I am near Poundmaker and us shareholders will likely supply all solf wheat market there and have much left over. Not to mention everyone else growing the stuff. Other ethanol plants are too far it seems to get a competitive price so this is why I am looking at the CWB although there is more risk in that market but also a good premium can be paid. I am guessing that there will not be much of a pool program for soft wheat. IF lots of tons get offered to the pool they will likely accept only a small fraction of the tons , feed market here seems to softenning, some less demand. Actually I am guessing the daily price contract to fill in only days. So my thinking is if the fixed price hits my comfort level I will be pricing, it is not off much if any at the moment. Forgetting about the daily. I can also take a malt production contract on the tons and if it is accepted then I will get another 10 dollar premium. This is all just my thinking , always nice to hear what other have to say. Oh and the spreads between 1 and 3 are not so wide this year, I suppose I leave myself open to a wider spread next year. Always a risk somewhere.

[charliep]

Just curious if the variety is Andrew? What is the acceptance of this variety by domestic flour millers?

Most soft white wheat that grades well is used domestically (at least pre-ethanol) and therefore priced off the north american market. I note a lot of southern Alberta soft white wheat is contracted to Robin Hood at Saskatoon.

[kamichel]

Yes Andrew wheat. I suspect the supply from Alberta will be replaced by the local supply near Saskatoon this year. If a farmer has a priced contract then the CWB will guarantee to take it. My guess if one waits for a pooled contract one will be out of luck. Small market. My discussion with a CWB person answering the phone mentioned to me that if sales were made into the Asian noodle market which is big will reduce returns back to the producer.
Now does this mean that the daily price will offer better returns than the fixed prices?
Today CBOT wheat down 9 cents and Canadian dollar not much change so Andrew wheat fixed price to go down 8 or 9 cents today.
Is there much frost damage to CBOT wheat? Is the current price now high? Low?

[charliep]

I agree with you assessment that daily price contract is likely a better tool - increased supplies wheat around the world (starting with Australia unless things go bad again this summer). North America is likely more interesting with cold weather damage still unknown. I watch the market for signals - down a couple of days but still pointed higher.

Can always sell futures realizing the loonie is not hedged. Basis is also an unknown. Don't know if the CWB will do an EFP. Exchange of futures for physicals.

[charliep]

Note the CWB beat up a little more on SWS wheat today in the PRO. Down $7/tonne versus $3 on everything else. Re-emphasizes the dpc contract.

Need to also express my frustration of having smaller classes pooled with everything else. A SWS price should reflect a sales opportunity (to an actual customer) for this class of wheat - not an estimate of the average spread relationship with other classes of wheat over the whole crop year.

[melvill]

The last time I talked to Robin Hood - now called Horizon Milling GP - in Saskatoon they'd made some changes in SWS contracting philosophy, maybe brought on by its new owners. HM won't be contracting any SWS for the 07-08 crop year. They're expecting so many SWS acres initially aimed at ethanol production that they don't expect to need guaranteed sources like they have in the past.

I'll try to check with them in case they've changed their policy in the last week or so.

[melvill]

Just talked with Ross Kidd, grain buying pooh-bah at Horizon Milling in Saskatoon. Says they're not contracting any SWS this year. They figure they'll be able to get more than enough of it this year from the Alberta growers they normally contracted with plus all the acres they "know" will be grown for ethanol.

[kamichel]

Melville is right, there is too much Andrew grown out here now and the ethanol plants are too far away. I wonder why they have dealt with Alberta growers in the past when they could have contracted with grower closer to Saskatoon. Sounds like they must have been paying a pretty good premium in the past to ship Alberta wheat to Saskatoon. Does growing it in Alberta give better quality?

[melvill]

kamichael, the key to growing SWS in southern Alberta is "electric rain" and, generally, dry falls. SWS grown under electric rain gives very high yields and the dry falls give very good quality. SWS is very susceptible to sprouting damage!