CWB to manage "Price risk" outside the pool?

[TOM4CWB]

Dear CHarlie,

What exactly is this:

"The CWB will introduce an adjustment factor on August 1, 2007, to manage the price risk outside of the CWB pool accounts for the tonnage committed to a Fixed Price Contract (FPC) or Basis Payment Contract (BPC). The late sign-up adjustment factor can be either positive or negative. It is determined by taking the average futures on CWB sales to date subtracting the current futures and foreign exchange then multiplying it by the percentage of the pool sold.

The late sign-up adjustment factor in effect on the date of tonnage commitment to an FPC or BPC will be applied. The fixed price values posted include basis and late sign-up adjustment factor."

I don't get it.

I signed up a commitment to deliver wheat in January of 2007, at a Dec 07 futures price of $6/bu.

I don't get this. What are the CWB talking about? I am taking a pooled basis... my wheat is sold through the CWB pool... when it gets priced on a Fixed Price Contract.

I take all the risk on the futures and exchange if I don't have the wheat to deliver.

What on earth is this "late" sign up charge... I won't have the wheat or be able to deliver till September 07... how can locking up the contract before October 2007 close date be late?

Why would the CWB start charging "late fees" on August 1 2007?

What have I missed here?

[charliep]

tom4cwb

Looking for a source on the quote. Sounds a lot like the adjustment factor that was applied a year ago for sales that have already been made/are a part of the PRO. They adjust for existing sales after August 1. Hopefully not something more than that.

More interesting to me is the fact they are already talking about BPC contracts for barley. I thought they had withdrawn from publishing PRO forecasts and offering producer pricing options for barley.

From the CWB website:

2007-08 FPC/BPC enhancements
Introduction of a BPC for feed barley
The CWB is offering a BPC for feed barley similar to the programs currently available for wheat and selected barley. Separate pricing alternatives will be offered for delivery into Pool A and Pool B. Producers cannot transfer between the pools for settlement.

Expanded FPC pricing options
To provide producers with greater flexibility, the CWB is adding a feed barley FPC value for Pool B delivery. Producers cannot transfer between the pools for settlement.

Simplified barley quality transfer clause
Producers wanting to transfer barley between a feed and selected barley FPC or BPC will retain the original futures value and receive the basis in effect on the date the clause is invoked. In the case of a BPC with futures only, the contract will simply be converted and the producer has until the sign-up deadline to lock in the basis. This clause is limited to Pool A for feed barley and it must be invoked on or before January 31, 2008. The feed barley Pool A ends January 31, 2008, requiring the settlement of all pricing commitments. The quality transfer is not offered for Pool B since producers will be in a better position to assess the quality of their barley before making a pricing commitment. A $15.00 per transaction administration fee will be charged for the transfer.

Source: http://www.cwb.ca/en/farmers/producer/fixed/

[charliep]

Should have read more of their information. The subsequent information on the barley fpc indicates the programs have been suspended. I guess the main page on fpc contracts hasn't been updated to reflect the new world.

Still can't find information on the rules around 2007/08 wheat fixed price/basis contracts.

[TOM4CWB]

Dear Charlie,

I cut and pasted off :
http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/fixed_price/fbpc-wheat-2007-mhrs-20070615.html

"Farmers
Fixed price and basis payment contracts
2007-08 pricing schedule
Wheat (CWRS, CWES, CWHW)

Effective: June 15, 2007 2:30 p.m. CT
Expires: June 18, 2007 7:30 a.m. CT
The next pricing schedule will be available at 2:30 p.m. CT on June 18, 2007. Winnipeg is located in the Central Time (CT) zone and all deadlines are quoted as CT.

The CWB will introduce an adjustment factor on August 1, 2007, to manage the price risk outside of the CWB pool accounts for the tonnage committed to a Fixed Price Contract (FPC) or Basis Payment Contract (BPC). The late sign-up adjustment factor can be either positive or negative. It is determined by taking the average futures on CWB sales to date subtracting the current futures and foreign exchange then multiplying it by the percentage of the pool sold.

The late sign-up adjustment factor in effect on the date of tonnage commitment to an FPC or BPC will be applied. The fixed price values posted include basis and late sign-up adjustment factor.

Prices offered are based on the reference grades for CWRS, CWES and CWHWS, as per the "2007-08 CWB Fixed Price Contract for wheat: Terms and Conditions" and "2007-08 CWB Basis Payment Contract for wheat: Terms and Conditions", in store Vancouver or St. Lawrence, are:

Futures Prices - Minneapolis Hard Red Spring

$ US/bushel $ Cdn/tonne $ Cdn/bushel

December 2007 $6.08 $237.61 $6.47
March 2008 $6.25 $243.88 $6.64

..."

[charliep]

The words in the daily fixed price posting have changed alright. Will have to ask the CWB if there has been a change in the way the adjustment factor is calculate this year. Here is the statement in the fpc site for June 15, 2006.

http://www.cwb.ca/db/contracts/ppo/ppo_prices.nsf/fixed_price/fbpc-wheat-2006-mhrs-20060615.html

Price risk for tonnage committed to a Fixed Price Contract (FPC) or Basis Payment Contract (BPC) is managed outside the CWB pool accounts. To accommodate sign-up of tonnage to the program after August 1, 2006, the adjustment factor is added to the basis the CWB offers. The adjustment factor varies to account for the amount of priced sales already attributed to the pool accounts and is dependent on current prices versus previous sale prices. The adjustment factor can be either positive or negative depending on current price levels.

The adjustment factor in effect on the date of tonnage commitment to an FPC or BPC will be applied. The fixed price values posted include basis and adjustment factor.

Adjusted basis = basis value locked in adjustment factor in effect on the sign-up date.

[TOM4CWB]

Dear Charlie,

If the CWB will not allow 2006 grain to be delivered against the 07-08 FPC, then this new system shows a strong disregard for those folks who simply need to reduce risk and price outside the pool.

This is an arrogant attempt to increase pool account take up... at the expense of those who can't know either the pricing or % of sales in a pool they have no control or input into....

IMHO proves once again the CWB has lost its way and doesn't understand why risk management is needed in a business...

Why they themselves (CWB)exist?

To make my life difficult.

Ritters words in the article Chaffmeister are hollow... are proven to be misleading and a farce ...
Does Ritter understand what he is subjecting his neighbours to endure?

I can only see indications that he does.

Chairman Ritter and his single minded drones... are old dogs... that are a poor hunters and a bad companions. They mess up my house every time they invite themself in.

Ritter and his single minded drones should be forced to use only the FPC for a year... instead of passing stupid bylaws saying Directors can't participate in PPO's: it should be against the law for them to use the pool accounts.

The frustration these management people at the CWB are causing is: unreasonable; vengeful, and mean spirited.

[TOM4CWB]

Charlie,

I can only see that "taking the average futures on CWB sales to date [in the pool] subtracting the current futures and foreign exchange, then multiplying it by the percentage of the pool sold:

THis is nothing but a veiled attempt to take value in hindsight from those who took risk and made a prudent decision... or worse yet priced produce at a lower level and get double punishment for being outside the pool and holding the risk in an earlier transaction... like a futures only pricing.

Is the CWB in essence taking off positions we put on, when we did the PPO...
Then the "late adjustment factor" is charging us for this risk if the futures/currency market goes against the future sale?

[kamichel]

Tom Said.

Dear Charlie,

If the CWB will not allow 2006 grain to be delivered against the 07-08 FPC, then this new system shows a strong disregard for those folks who simply need to reduce risk and price outside the pool.

This is an arrogant attempt to increase pool account take up... at the expense of those who can't know either the pricing or % of sales in a pool they have no control or input into....

Sorry to jump in here on this one, but If a farmer contracted into the pool account then the farmer should deliver into the pool account and take what the CWB gets him. That is my opinion. I know in the past is was different and maybe the CWB should have let farmers know of the changes because we often take for granted that we can take a higher price if the new crop price looks better. But that lowers pool account final payments. Other farmers who have all these new options from the CWB want world priced grain. Just my opinion that if a farmer grew the CWB controlled grain and entered the pooled account knowing that there is a risk that new crop could be worth more, then he should deliver and take it as a learning experience.
I am unsure if one is able yet to take new crop pooled instead of old crop.
Just my opinion if I understand you correctly.

[TOM4CWB]

Kamicheal,

If a grower makes it to July... without the CWB taking the delivery opportunity away by terminating the contract... or had not contracted till the C Series... it is their "RIGHT" under the CWB Act to deliver the wheat into the next crop year.

One of the few levers of marketing power growers have in the CWB system... is this option.

It is a sad day... when you take the "single desk" and tell me I cannot deliver grain I had priced and taken all the risk on... 6 months after I priced it... to pay bills to plant the next crop. The PRO for 07-08 is insane... especially when fixed prices are close to $30/t more than the PRO.

The CWB can make sales to Brazil at $30/t under the market... without thinking twice, because they can extort it out of "designated area" growers without even a peep.

The "Pool" excuse is simply a "single desk" CONTRIVANCE... to force growers to contract grain they would not otherwise sell, and to have the CWB turn around and reject a big chunk of... like the cwb did by refusing 20% OF THE A Series THIS YEAR.... stinks all the way to high....

The CWB is so arrogant and out of touch... and you don't care... why would this be?

[charliep]

You can still deliver old crop and price into the new crop year at 2007/08 initial payments/other payments as announced.

My understanding from talk to CWB representatives is you can still use the 2007/08 DPC to price old crop early in the crop year (August). $5/tonne of additional tookage and the risk associated with the market. Except for a futures position, no way of offsetting price risk (particularly on the basis/grade and protein spread side).

You still cannot use a 2007/08 FPC to price old crop wheat on a storage ticket.

To keep on topic, the original question is very curious to me (have asked the question). I am amazed how the CWB makes changes to programs without any communication strategy and nobody notices or cares. I guess farmers have so much money that changes that impact your bottom line 5 or 10 cents/bu don't matter.

[Herbdoctor]

It seems to me the outside factors affecting the CWB are causeing it to perform a little off target (If they didnt have to worry about getting pushed out of the game by the Freedom fighters they might have a chance to focus more on actually marketing the grain) and all of this affects how easily could you perform at your job if you knew that there were forces out there doing all they can to destroy your business? The funny thing is the same people that OWN the CWB are the ones trying to get rid of it. If the CWB operated like the grain company you'll be selling your grain to they'd be in it for a profit (thank god they're not) bottom line is right now you have the power of one (whens the last time you saw a company UN-merge?) that just doesnt make sense to me how can you justify breaking up the one to make 30,000 people try to achive anything close to what they recieved as one? all while dealing with the margins of the ever shrinking grain companies (AU and Sask wheat pool are merging... so why would we want to Un- merge? I don't understand how we gain market power by doing this...

[TOM4CWB]

Herbdoctor,

In growing grain with others... renting land or Crop Share... we are at risk of loosing our business with those people... all the time. If we don't perform well... we don't farm that land.

Same goes with our bank... and many other aspects of our business.

Please tell me why the CWB should get a free ride and not be accountable in the same way?

I don't see the results that back up the CWB's claim that they deliver a premium... WHERE IS THE MONEY?

Even more important... if the CWB isn't going to get top dollar...

then where is the additional flexibility that should be a benefit of not being so tied up with contracts on every pound of grain my farm delivers... the CWB won't play fair ball... it is a one way game... all their way. The CWB does change the rules... it does so in the name of the collective... when it clearly hurts individuals who don't want the added risk of CWB pool discount pricing.

THis is not a matter of respect for individual growers... because that respect is lost in the CWB "SIngle Desk" which the CWB has chosen to believe it cannot exist without; taking away individuallity, flexibility and integrety.

[Herbdoctor]

Say a Grain Company was costing you money...do you have any means of telling them how they should take a little less profit from you? no you don't...You happen to own the CWB just as much as any other farmer and at least through a vote on an issue a change may take place. Your sitting there right now with the power to right some of the wrongs yet the only answer you come up with is to end it all together and try to deal with the next hand in your pocket...you take you battle to the CWB because they sign your checks doesnt mean they are responsible for the lower prices... if you can remove your tunnel vision for a while and take into consideration the outside factors that affect the price of your grain you may see a dim light...but only you have the power to make it brighter... and of course everybody and theyre dog wants to make it seem like a good idea at the moment because Barley isnt really the big issue here its wheat and durum they want to get their hands on that power because the CWB is really the last thing standing in their way

[TOM4CWB]

Herbdoctor,

Wrong again.

The CWB works for the very grain co's you are so afraid of... whether they/you realise it on not.

The CWB has close to no market power in the new integrated closed chain systems.

The manipulation of the CWB is much easier... because the CWB sales dept. has no cost of sales like most growers have and must recover.

The CWB pool covers more than just a bad decision day... it covers a whole year of bad decisions. Grain growers can recover from a few decisions that are substandard... but they are soon history if they don't learn quickly. BROKE and BANKRUPT.

THe CWB can sell 100,000t in a second. Ever heard of easy come easy go?
Certainly it's not a good way to extract a premium. Malt Barley...Brazil... DURUM Discounts... even proof with a full DPC 07=08 in less than a week. THis should be proof enough for anyone that actually cares and is concerned for the next generation of grain growers in the "Designated Area".