CWB in the market for some white wash

[parsley]

And if you read the email post from McBain on Parslsey's Notebook,...... delivering grain to the pooling accounts could become, er, a bit worrisome? Pars

[charliep]

Where should the money come from to cover these hedging losses (an oxymoron given a hedge account should never make or loss money) to cover the futures losses on the producer payment options? When the CWB has a loss on a hedge account (realizing they manage risk across a whole pooling year), what does a futures trading loss represent? Is it a real loss or a CWB accounting practice?

Note again the losses were from futures trading and not basis - annual report.

Use of FPC, BPC and DPC/Flexpro were about 4 MMT in 2007/08 and about 2 MMT in 2008/009 (see Ian Whites presentation crop production days - slide 9 - http://www.cropweek.com/presentations/2009/2009-jan16-cwb-white.pdf). Assuming an average use of 3 MMT and an average $10/tonne to pay off the PPO liability, it will take 3 years to pay off the $90 mln.

[charliep]

Perhaps the point is that somehow, the loss on the PPO should be a business loss and not a farmer one. Farmer needs and decision making should be separated from that of the CWB entity. Should be lots of questions about where the $20 mln cash trading profits came from but leaving alone for the moment, I note CWB business profits were allocated directly to the PPO contingency fund. Hence my suggestion in another thread for the need for business equity to absorb losses or grow with CWB activities.

[charliep]

I also highlight page 46 of the annual report (wheat ex durum) - the table as a result of increased reporting requirements around derivatives in financial statements.

Bottom of the page 46 - 5.1 mln tonnes of wheat ex durum was priced using PPO products out of a pool size of 13.4 mln tonnes or about 40 %. Half way down the page - the average price of pool sales - $366.65 versus ppo of $363.61. Put another way, the contingency fund loss brought the PPO values into line with the total payments. What isn't clear is how the fit between the losses on discretionary trading allocated to the whole pricing pool (including PPO products) and the $90 mln allocated to the contingency fund. I think someone else asked this question.

[charliep]

4 times in row but some stuff too interesting. You can compare the level of information provided in the 2006/07 annual report to the current year. The PPO information is a major component of the reporting for the overall pool results.

[parsley]

“…a contingency fund has been established to underwrite the programs to ensure that program operating gains or losses will not impact the pool accounts.” Annual quote from the CWB

Now that, we could take to the bank. Right?
Pars

[charliep]

That was and is the commitment. From there, the questions would have to go to the level of
financial/risk management control both on the operations side of the CWB and the ultimately
the B of D. This loss did not occur overnight. Someone cut a lot of big cheques a year ago.
What steps were taken to recognize the problem early and from there, mitigate the
consequences?

So we are where we are today. Should the users of the producer payment options be saddled
with this legacy over the next 3 to 5 years (maybe more) in terms of wider basis/deductions?
The annual report states very clearly the basis levels used in PPO calculations were fair. Over
90 % of the farmers who used the PPO accepted prices below the 2007/08 total payments.
Should the tax payer ante up to pay off the contingency fund? I suspect this would just lead
to a continuation of the problem and more calls for tax payer help in the future. Where else
will the money come from?

No answers to a big problem. Only know that the result is a penalty for farmers who have
used the PPO in 2008/09 and this problem will carry on into the future. My only point is this
is a CWB problem - not a farmer problem.

[charliep]

Perhaps the other issue is the CWB needs a lot bigger
contingency fund than it has now. The question comes to
who antes up to build the fund. This will get you excited
Parsley but perhaps all farmers should have $10 to
$20/tonne deducted in 2008/09 and onward to be
deposited in a contingency fund - PPO users to pay off the
current contingency fund debt and users of the overall pools
to build up a new contingency fund for the day government
guarantees are removed. That would be fair - wouldn't it?

[LWeber]

WTF is this?

Related Information
Amendments not in Force

Last updated: 2009-02-16

http://laws.justice.gc.ca/en/CmdNev/cs/C-24

Last updated: 2009-02-16

[Fransisco]

Nice catch on page 45 of the annual report there charlie, I hadn't noticed it before but the final PPO price is neck and neck with the final pool price. This is the case in '07 as well as '08.

If we'd have had a competitive basis the final PPO would have kicked the final pool price in the butt. There were many times this year when the board basis levels were out to lunch by $36 per tonne at times I even saw it out by twice that amount.

So what's all this nonsense about how farmers would get worse results outside of the boards iron curtain when they seem to do just as well even when there hands are tied with horrendous basis levels?