CWB Premium Myth Shattered...$226M losses proof.

[bucket]

One thing to consider. If farmers were in an open market environment - would they collectively have lost 226 million on their marketing?

Somehow I don't think that would have happened in an open market. There might have been a few struggling farmers but the overall returns to most would have been higher.

I just don't fundamentally agree with income splitting with anyone which is what we have with the CWB.

AND INCOMPETENCE.

[HFL]

Good point Fransisco.......Nobody asked for this crap

[charliep]

Just a reminder of what this $226 mln is.

1) It is a performance measure the board of directors uses to monitor the relative success or failure of the operations side.

2) The basis of the measure is an assumed pace of wheat sales during the full period of CWB sales during the crop. If the sales pace is faster or slower than the assumed pace, the CWB operations side can offset this risk in the futures/derivatives market.

3) The operations side/board of directors needs to be up front about what this measure means. They alson have to be up front on the relationships between these losses and those of the producer payment options contingency fund.

4) Given the products and services the farmers (a request of all farmers in the annual surveys), the CWB has to be a lot more innovative in how they handle the pools/producer payment options. This includes multiple pools within a crop year like feed barley, matching actual cast sales against values offered to farmers (cashplus for malt barley), etc. THE CURRENT PROGRAMS ARE EXTTREMELY HIGH COST AND DO A POOR OF MANAGING CWB RISK WITH ALL COSTS EVENTUALLY UNLOADED ON FARMERS. IN MY HUMBLE OPINION, THE CWB SHOULD INCLUDE THE $90 MLN PPO LOSS IN THE PERFORMANCE MEASURES LOSSES WITH CWB POOLING ACCOUNTS PICKING UP THE WHOLE TAB. BOTH REFLECT THE INABILITY OF THE CWB TO EFFECTIVELY USE FUTURES MARKETS.

[Fransisco]

So in short, you're saying that the CWB lost a total of $316 million in the futures market this past year.

[charliep]

Yes with perhaps some pain on the basis side for the daily price contract. From the annual report, basis risk on the producer payment options was covered by the CWB adjustment to futures.

In highlighting, the note has to be that CWB is never clear on what their basis given all products are related to the Pool return outlook at a given and the assumed relationship with the average CWB prices during the year (both actual sold to date and projections for unsold inventory). The accountant nevers comments on this in the annual report - not their job. They can only look at CWB process from a strictly accounting standpoint. The accountants are not hedging/risk management specialists and really only can be held to th information from page 73 on in the annual report. Read the statement of work on page 73. The statement is the same on all financial audits by the way - nothing special except perhaps reference to the contingency fund. You might also want to read the disclosures on page 68 of the annual report (Reconciliation of Non-GAAP Measures - indicates some changes to how financial instruments are being reported in all financial statements including CWB one as a result of recent experience in the over all business world.

[TOM4CWB]

Dear Charlie,

I note this:

"Exchange-traded derivatives are used to
complement the selling activity, to provide flexible pricing
alternatives to customers, such as basis contracts, and to
engage in discretionary pricing activity when appropriate."

'to customers'... not growers.

This baffles me.

Then the CWB complains about the PPO contracts after this statement.

The CWB could have easily traded well over 1 billion dollars in long hedges... but they refuse to disclose what they do... it was the CWB's opportunity to be transparent. They FAILED.

"The Corporation has elected to discontinue hedge
accounting and therefore has not adopted Section 3865 – Hedges."[Page 80 CWB Annual Report 07-08]

"Realized gains or losses are recorded in the period in which they occur as a component of revenue.”

This is our $$$ Billions the CWB are playing with... AND THE DIRECTORS CHOOSE to play fast and loose with our money... and then to refuse to show us what they did.

I can imagine the problems this causes.

Everyone I talked to knew the CWB was pushing wheat through the roof.

We know the CWB uses these exchanges to price its cash wheat.

No wonder the CWB could not get any where near US elevator prices... cause very likely the grain buyers would be furious... and require a huge discount on the basis... (I know I would have) because it was all too evident to grain buyers the CWB was 'Discretionarily' manipulating the market especially on the MGE!. Every one I talked to in the trade... knew it!

We growers lost on both sides... the buyers had the CWB over a barrel.

Now the CWB refuse to show what they did... I wonder why?

There should be a parliamentary inquest into CWB manipulation of our food markets!

[charliep]

Yes. CWB customers can lock in a cash price on any day as well as using basis contracts, futures only, etc. These custmers (including domestic as indicated by increased use of US wheat in domestic flour mills) can lever prices/terms as a result of competition from other buyers. Farmers as CWB stakeholders (farmers are not customers) must accept a single desk derived producer payment with no reference to a real sale/basis with futures or competition from other service providers.

[agriman]

Look, guys. Nobody is going to know any more about this than the mighty CWB wants you to know, which is nil. Speculate and add up all you want. You will never prove anything. Bits and pieces come out pointing to the high probability that the CWB was big short in March 2008 Minneqapolis futures and long holders, guessing who the short was and realizing that the short had no way to cover its positions by delivery, squeezed the shit out of it. That cost the CWB, and eventually western Canadian wheat growers, $90 million. The CWB's trading adventure and its incompetence is the sole reason why Minneapolis March 2008 futures hit $25 a bushel, a stunning $900 a tonne. Long holders must have had a helluva party. Some guys made enough to retire on at Fisher Island thanks to our good ol' CWB. The crazy thing is that wheat growers who were in the alternative pricing schemes actually got more for their wheat than the CWB did. Talk about crazy.

[TOM4CWB]

Agriman;

And then there were the 'Freinds of the CWB'... who the CWB cash traded and paid $846/t.

We should know EXACTLY who was given this gift. Want to make a bet it was the most vocal CWB 'single desk' supporters! this program was put together at the last moment... to pay big time for these folks. No year ahead booking... no contributions to the pool.

And those Organic export licenses... at under $10/t... when I was required to pay $500/t?

How is this any where near fair... and anything but a conflict of interest... for organic directors of the CWB?

THis is criminal.

[charliep]

tom4cwb

On your question on how much wheat was priced in the January to March 08 period, the answer is likely not a lot. The CWB posted prices that farmers sold at in the year presentation and I assume the DPC decision wouldn't be a lot different than the FPC ones. From CWB information, 87 % of farmers who used PPO contracts sold for under $7/bu (similar to the what the CWB says the US farmer sold for in the next slide), 8 % for $7 to $10/bu, $2 % for $10 to $15/bu and 1 % for over $15/bu. The implication is very little of the higher price was distributed to farmers but rather the process showed the DPC as a loss because the CWB hedging strategy carries risk across a whole pooling period (with all the risk associated with it).

See slides 7 to 9 of the yearend report. Will note the $560 mln better price than what the US farmer got. Won't start a new thread but can anyone demonstrate this in the annual report.

http://www.cwb.ca/public/en/newsroom/releases/pdf/webcast_073108.pdf

[Fransisco]

Moral hazard: is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions. For example, an individual with insurance against automobile theft may be less vigilant about locking his or her car, because the negative consequences of automobile theft are (partially) borne by the insurance company. Morale hazard is sometimes used to refer to moral hazard which occurs without conscious action.

Moral hazard is related to information asymmetry, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.