CWB Fixed Price Options- some specific questions.

[AdamSmith]

I've been doing calculations on the CWB Fixed Price Options. Using the info from the CWB web site and adding in the freight and handling costs back to the elevator. Here's what I have come up with.

April 12 Fixed Price $220.45 less freight and handling back to SW MB elevator(using 2000/01 #'s, I didn't include any incentives but usually they're available) of $47.21 gives you 173.24 or $4.71/bu for #1 CWRS 13.5

For Winter Wheat I subtracted another $35.6 (diff between #1 13.5 CWRS and #2 CWRW) to get $137.64 or $3.75/bu. if you could get #1 11.5 CWRW add another .16/bu. for $3.91/bu.

Question: Am I doing this right and are my #'s correct. charliep, Tom4, thalpenny, anyone else?

These prices are much better than what the elevator NB cash prices are offering. Whats up with that?

So if my #'s are correct I've figured out the basic fixed price but what about the basis contract. The CWB has a fixed basis of $18.20t over Dec. Minnie. Assuming I locked that basis in and the price rallied $.50 bu or $.78 Cdn. I would assume to get the fixed price which I showed above plus $.78/bu. is this also correct or is it the Dec. Minnie plus $18.2t or are they the same thing (I think they are).

Is this right?

Minnie wht has been ralliing for a couple of days now, up 8 cents Thurs.,up another 6 cents today so far (11:55 CST) what strategy should one employ under this scenerio?

I'm thinking of letting the market rally here, but before the new set of PRO's are announced on April 26 (while the basis that really isn't a basis is still at $18.2) lock in a portion of my total wheat production splitting it equally between the fixed price and the basis contract.

Is this a reasonable plan?

One last question, my thinking is that since the time of the Mar22 PRO Minnie wht has rallied $10 Cdn/ tonne. I'm guessing the PRO won't go up $10/t so I would be losing a good opportunity to lock in a higher basis level ie $18.20 over Minnie vs probably $8 over.

Am I reading all this right?

AdamSmith

[charliep]

AdamSmith:

Your calculations are right with the comment that your assumed spread for CWRW will vary with this years initial payments announced on Aug. 1. Likely to be the same but no guarantees. Just to highlight, you are paid the normal initial payment for whatever grain you deliver (CWRW in this case) and your equivalent to final payment under the FPC is the difference between the initial payment for 1CWRS 13.5 and the actual value of the contract price you locked in.

I will refer you to Tom4CWB and my discussion in "New Crop Pricing" for thoughts as to why the non board is not offering better prices for feed wheat. I talked to Mike Jubinville, Profarmer Canada (Winnipeg) and he indicated current delivered feedmill Winnipeg prices for US corn is in the $125 to $130/t area. I don't know how far out into the summer/fall this goes. Where are zero vomotoxin tolerance feed barley prices at in Manitoba? Low prices for other feed ingredients will hold back feed wheat price gains - particularly in Manitoba where corn is a viable alternative in high energy requirement feed rations - particularly poultry.

You are right in the way you show the impact of higher MGE wheat futures on the value of the FPC contract with the caveat that you to adjust for the value of the loonie between different days. An interesting note is that a 1 cent change in the loonie relative to the US dollar changes the value of the FPC contract by about Cdn $3/t. That is, moving the loonie from 64 cents US to 65 cents would decrease the value of the contract by $3/t while a 63 cent loonie would add $3 to the value of your wheat.

I like your plan. Wouldn't do anything different.

I can't second guess what the CWB will do in the April PRO. With daily pricing, I think they will not want to shock the market with major changes in PRO forecasts outside that indicated by changes in MGE futures and loonie values. The CWB should be making the changes gradually as warranted during the month. Again, we will have to wait and see.

Others comments.

[TOM4CWB]

Adamsmith,

The Canadian Dollar forcast has a major effect on the PRO.

Typically the basis gets better as the PPO contracts get closer to July, however with the new Dec. March Month interchange, a person now would have to do a hedge on their own both the dollar and Minneapolis, if a price that you like is reached.

Then when we get to the end of July, a better basis is likely with the CWB.

However if the CWB encounters losses in PPO positions, they may reduce the basis closer to last year, around 10/t instead of 18/t.

It is a big gamble any way you look at it, but the PPO is a mile ahead of the Winnipeg feed wheat contract.

Will this premium stay?

Will Winnipeg have to rally, especially if Alberta and Western Sask stay dry?