From today's Gartman report-
Turning firstly to the grain markets where we'd like to be bullish but where the time is no yet right to be so, an interesting bit of news has come across our desk from Canada: <b>The Canadian Wheat Board has now officially suffered a huge "discretionary commodity trading" related loss of C$226 million last year, leaving the Board with a loss for the year of just under C$90 million.</b> There is no possible explanation for this loss other than the <b>management took speculative positions in wheat that clearly went massively against them</b>, and those losses were averaged into, making them worse as the losses increased, eventually becoming large enough to force the fund to liquidate it positions. The loss is all the more shocking in that <b>the Wheat Board buys wheat from Canada's farmers at rather material discounts to the spot price</b> and then "markets" that wheat through its pooling activities. Thus, it is one thing to lose money trading speculatively; it is quite another to lose a sum this large when one has a huge lead on every "trade" from the outset.
We cannot be certain yet what has happened, but we submit the following:
that during the massive run-up in spring wheat futures last spring, as
spring wheat ran from $4/bushel to $25/bushel, there were rumours which we reported here that a "quasi-government Canadian entity" was on the wrong side of the trade and that that entity was "squeezed" into the final trading sessions of the March and especially the May futures. We suggested then that it was the CWB that was caught short, and we speculated that the Board was itself speculating, however, we could not be certain that that was correct. Now we are obviously somewhat more certain that that is what has happened.
We are certain also of this: that <b>those responsible for these egregious
losses will not suffer the loss of their job for that is not the "Canadian" way</b> [Ed. Note: Just to get ahead of the objections to this statement, this is apparently not the American way either, for here in the US, our banking leaders have forged even larger, far more stupendous losses. witness the idiocy of Ken Lewis at Bank of America, or Vikram Pandit at Citibank, or the collective management of Wachovia, or that of Bear Stearns et al. and not only where their jobs not lost, they were paid tens of millions in bonuses!]; <b>secondly, the Canadian wheat farmers will be paid even greater discounts to the spot rate when they "sell" their wheat to the CWB this year as the Board attempts to recover its losses.</b> Finally, Canada's wheat farmers will again push for the right to market their wheat on their own rather than
being forced to sell their wheat to the CWB, but the Left will point to the huge losses sustained by the Board and will mandate that Canada's farmers be even more forcibly tied to the Board until such time as these losses are ameliorated, and that may take years.
The one good thing to come from this announcement:Finally we know what happened last year as wheat prices soared beyond comprehension. We blamed
much of the run-up in spring wheat to the "long-only" funds that were
rushing into the market at the time, just as we believed that some... .but
very clearly not all of the strength was fundamentally warranted. We
warned, however, of the possibility of "one large institutional short" that had been caught off-sides, and we speculated that it was a Canadian, and now we know it was the CWB.
Turning firstly to the grain markets where we'd like to be bullish but where the time is no yet right to be so, an interesting bit of news has come across our desk from Canada: <b>The Canadian Wheat Board has now officially suffered a huge "discretionary commodity trading" related loss of C$226 million last year, leaving the Board with a loss for the year of just under C$90 million.</b> There is no possible explanation for this loss other than the <b>management took speculative positions in wheat that clearly went massively against them</b>, and those losses were averaged into, making them worse as the losses increased, eventually becoming large enough to force the fund to liquidate it positions. The loss is all the more shocking in that <b>the Wheat Board buys wheat from Canada's farmers at rather material discounts to the spot price</b> and then "markets" that wheat through its pooling activities. Thus, it is one thing to lose money trading speculatively; it is quite another to lose a sum this large when one has a huge lead on every "trade" from the outset.
We cannot be certain yet what has happened, but we submit the following:
that during the massive run-up in spring wheat futures last spring, as
spring wheat ran from $4/bushel to $25/bushel, there were rumours which we reported here that a "quasi-government Canadian entity" was on the wrong side of the trade and that that entity was "squeezed" into the final trading sessions of the March and especially the May futures. We suggested then that it was the CWB that was caught short, and we speculated that the Board was itself speculating, however, we could not be certain that that was correct. Now we are obviously somewhat more certain that that is what has happened.
We are certain also of this: that <b>those responsible for these egregious
losses will not suffer the loss of their job for that is not the "Canadian" way</b> [Ed. Note: Just to get ahead of the objections to this statement, this is apparently not the American way either, for here in the US, our banking leaders have forged even larger, far more stupendous losses. witness the idiocy of Ken Lewis at Bank of America, or Vikram Pandit at Citibank, or the collective management of Wachovia, or that of Bear Stearns et al. and not only where their jobs not lost, they were paid tens of millions in bonuses!]; <b>secondly, the Canadian wheat farmers will be paid even greater discounts to the spot rate when they "sell" their wheat to the CWB this year as the Board attempts to recover its losses.</b> Finally, Canada's wheat farmers will again push for the right to market their wheat on their own rather than
being forced to sell their wheat to the CWB, but the Left will point to the huge losses sustained by the Board and will mandate that Canada's farmers be even more forcibly tied to the Board until such time as these losses are ameliorated, and that may take years.
The one good thing to come from this announcement:Finally we know what happened last year as wheat prices soared beyond comprehension. We blamed
much of the run-up in spring wheat to the "long-only" funds that were
rushing into the market at the time, just as we believed that some... .but
very clearly not all of the strength was fundamentally warranted. We
warned, however, of the possibility of "one large institutional short" that had been caught off-sides, and we speculated that it was a Canadian, and now we know it was the CWB.
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