CWB lost $467M on Hedging Activity

[TOM4CWB]

Dear Charlie,

I see the CWB paid PPO growers $1.26B for our grain... (Pg.61) and sold it for $1.65B. We as growers paid any liquidation damages required IF we didn't fill our contracts...

SO how in the world did the CWB rack up losses of $467M?

Did you see the CWB sold organic cash wheat for $846/t!

Rod, Stuart, and the 'single desk' organic crew must be proud of the CWB... it can sell organics and basically break even... while PPO commercial suckers aren't allowed to cash price...

What a total farce.

[bgmb]

Humm tom I wonder

Would the hedging losses be from grain priced early by farmers through the FPC and hedged by the CWB before the price exploded.

[Hopperbin]

BGMD that does not make sense.
First of all the reciepts from the grain sold on PPOs totalled, 1.643 billion
The amount the farmer got was 1.258 billion. So that must mean when the farmer priced his PPO the CWB actually sold the grain for much more money 1.305 times more than what the farmer got paid.
The so called hedging activity amounts to more than 1/3 of what the farmer got paid on his contracts. That is actually technically impossible so some questions have to answered about what this hedging activity actually is. I think I know so I will say it now. It is a transfer of money to the CWB pooled account and nothing else. The CWB's explanation is bogus, crap,

Screw the CWB.

[Hopperbin]

Oh crap this just gets worse.

The 89 million deficit in the PPOs works out to 20 dollars per ton of PPO grain.

Oh Crap it just got worse again.

The 467 million they claim for hedging expense works out to 103 dollars per ton of PPO grain sold.

[Fransisco]

Can the board really be that bad at this? Yes it can.

[Hopperbin]

Oh crap this just got worse again.

So when I locked in my soft wheat for 5 dollars a bushel net to me on a PPO. They are claiming a hedging loss of 2.8 per bushel as they say all the hedging losses are due to wheat.

SO HOW IN THE HELL CAN THE PROS GO SO HIGH WHEN THERE IS SUCH LOSSES ON THE PPO,s? BUT THERE WAS NOT A LOSS PPO GRAIN ACTUALLY HAD AN INCOME OF 1.643 BILLION. 1.303 TIMES MORE THAN WHAT THE FARMER GOT PAID ON HIS CONTRACTS.
THE HEDGING EXPENSE IS CRAP PLAIN AND SIMPLE.

[TOM4CWB]

Hopperbin...

I am afraid that on the other thread Charlie highlighted what happened...

The CWB 'made' back the hedging losses... with basis gains.

Remember that the basis was up to $6/bu OVER the MGE futures... PNW growers... and even CDN organic growers cash traded this... as it was the case @ $846/t the CWB paid out to 'designated area' and actually got $845.50/t cash.

$100/t was nothing...in this market.

Remember the PPO growers/sellers were forced and in fact paid the outstanding futures difference... on anything they had contracted and did not deliver to the CWB in 07-08.

[Hopperbin]

I don't get it the basis is supposed to reflect to the producer the actual price.
But not really if anything on most contracts the producer was at a disadvantage the the actual price.
Yes the pricing damages are accounted for
they amounted to 7.864 million.

[Hopperbin]

Tom you are referring to American basis.
We in Canada never had that positive basis. So if the PNW had a positive 6 dollar basis why would the CWB have a negative 4 dollar basis? (hedging loss plus negative basis?)

[Hopperbin]

I got the pos and neg terms on the basis backwards I believe but you know what I mean.

[TOM4CWB]

Hopperbin;

The CWB basis is ficticious.

Get a load of this:

"Offsetting these losses were gains in basis. Once producers
have priced, they have locked in their basis levels. If the
final achieved basis of the pool is different from what
producers locked in, a gain or loss will result. The basis,
which is unhedgable, widened over the course of the
year due to the very tight world grain fundamentals that
became apparent after producers locked in their FBC/
BPC prices, resulting in a gain to the program.
The DPC was introduced in 2005-06. It offers producers
an opportunity to capture daily cash prices based on the
U.S. market. A total of 654 479 tonnes was delivered
to the program in 2007-08. Pool returns paid to this
program were $242 million. After accounting for pricing
damages (offset by contracted values net hedging losses,
interest and administrative expenses), the program had
a net deficit of $18.5 million. The reasons for this deficit
are similar to those with the FPC and BPC programs.
However, the DPC had additional basis risks as it was
based on U.S. elevator prices. During the period of
pricing, the U.S. elevator bids became dramatically out of
line with pricing in the rest of the world, largely because
little grain was available for sale at U.S. elevators. As the
CWB sells into multiple markets, this resulted in a loss
for the program.
Management expects that the revised offerings of PPO
programs as well as the adjustments implemented due
to the previous years’ losses will generate positive results
for the Contingency Fund in the future. In addition,
management has engaged an external consultant to
validate the hedging and pricing adjustments.
Page 62
To uphold the principle communicated to farmers that the
PPO programs will operate independently of the pool,
the board of directors has approved a policy that provides
for repayment of funds to the pools from the PPO programs
when the Contingency Fund is in a positive balance.
Repayments to the pools cannot force the Contingency
Fund into a negative position.
Page 67


Soooo the CWB cooked the books... to make themselves 'look' like competent managers...

What a joke... and it is just the beginning... I will post the next question in another thread...

[TOM4CWB]

Hopperbin,

Can you figure this out?

On Wheat EPO's... on 1.7 million Tonnes... the CWB charged $9 million... it costed them $4.2 million... and they netted $3 million for the contingency fund.

Stellar performance.

The CWB cash sells barley... and has no problem... the Organic wheat sold for $846/t... lost a wopping $.50/t with no hedging or risk management ability at all.

The CWB managers must think we are fools and can not read.

Perfect risk management for pool products... then on the PPO's... a loss of half a $$$billion.

These guys make the car warranty artists from Florida/US look like amateurs!

[Hopperbin]

All I can say is she ain't over till its over. Right now I have a serious headache. After reading notes its still not clear where these numbers come from. This is an unaudited I take it. We need better explanations.

[Hopperbin]

Tom you said "The CWB cash sells barley... and has no problem... the Organic wheat sold for $846/t... lost a wopping $.50/t with no hedging or risk management ability at all. "

I have been wondering about that.

[TOM4CWB]

Hopperbin;

Get a load of page 80!

"The net foreign-exchange losses included in operations for the year ended July 31, 2008 are $49,594 (2007 – $5,885 gain). Page 80

So... Hopper the CWB is near 'perfect' in its ability to manage foreign-exchange risk... while dealing with billions upon billions of $$$ of activity.

Now comes the kicker...


"The Corporation has elected to discontinue hedge
accounting and therefore has not adopted Section 3865 – Hedges.
Financial assets classified as available-for-sale will be accounted for at fair value
with unrealized gains and losses due to changes in fair value being reported in a new category called earnings for future allocation.

The Corporation’s grain sales and purchase contracts are derivatives because their prices are based on an index. The Corporation’s decision is
to treat all grain sales and purchase contracts as derivatives.

All outstanding grain sales and purchase contracts will be fair-valued with realized
and unrealized gains and losses due to changes in fair value reported in income.
We do not apply hedge accounting to our derivatives."

Good job on a great cover up... so CWB contingency fund and botched risk management will not be disclosed.

If the CWB had nothing to hide... it would fully account for everthing.

This is a farce.

What about hedges for 'customers'?

What about hedges done to string out or shorten the pool pricing line... where are they accounted for?

So... how much did the CWB actually blow out the window in Jan/Feb/Mar of 2008?

Unless a special audit is done... no one except CWB managers who took home big fat bonuses, will ever know!

A Wall Street special... with a Canadian Beaver nailed to that wall... thats me!!!