CWB Basis?

[lakenheath]

Surprise of the month (hardly). What a joke. I was once told that a major factor in detemining the basis was the quality of wheat produced in the U.S. vs the quality of CWRS in Canada. Currently we are discovering that grain being harvested in the States is of very low quality. So you can throw the "Premium No.1 13.5 CWRS" theory right out the window.

I am frusterated. Was ready to trigger another small percentage of my production today for a few cents more than yesterday and with the click of the mouse the basis in hammer down to drop the price of the FPC 3 cents a bushel.

And worst part of it all is you can't get answers for why it went down. And if you do, they don't make any sense.

[lakenheath]

Correction. It is 4 cents lower today. It is pretty hard pricing into a rally when the basis is adjusted downwards every few weeks.

Has the basis on the FPC ever strengthened during a rally? I will have to pull some historical charts to check into this.

[disker]

Red winter even worse. $6/tonne more basis today, must be because of all the risk the cwb is taking in this wheat market. I hope they get it like they did in barley SOON!
Formula must have kicked in to keep the pool price close to the FPC.

[Barleyman]

The basis is adjusted down to keep the price you lock in close to the pooled cwb price. If it was left alone to market rule, like it should be, the cwb price would be an awful lot lower. Then the cwb would look even more incompetent than they allready are.

[btjadenlepp]

been watching since 01/02 and i've never seen the basis improve in a rising market.

their most consistent habit in adjusting the basis is to do it in conjunction with new pro's coming out, which makes sense. why would they pay you more through the cash pricing option than they think the stuff is going to be worth through the pool?

we have not moved moved beyond mandatory pooling with these options, if you ask me.

[Zaphod]

Here is the CWB explanation, under FAQ section of PPOs

"How is the basis determined?

The basis is calculated by deducting the CWB’s forecasted futures, plus a discount for risk, time value of money and administration costs from the reference grade CWB PRO. It is the CWB’s projection of the average basis on pooled sales for the full crop year. The basis is recalculated each time the PRO is released."

This tells me that whenever the market rallies, the CWB falls farther behind the cash market and has to widen out the basis. Sad, isn't it?