CWB in the market for some white wash

[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?

[Fransisco]

Here is another way to look at it, the $89 million dollar loss in the PPO's works out to $20 a tonne. You tack that $20 onto the final PPO price and they come out well ahead of the pool price.

[charliep]

I have been looking at the same thing and wouldn't come to the same conclusion. The $363.91/tonne is the CWB target price/measure of success to show they have managed the risk around the pooling account - demonstates the accounting process to back this up. Losses on futures both planned and taken care of by farmer contracting/delivery of physical grain for a lower price and unplanned in terms of losses to the contingency (risk the board was not able to cover) need to be removed from this.

Likely too simple but here is the process I worked to come up with a back of cigarette package number. From the annual report, farmer FPC and DPC contracts amounted to about 4.4 mln tonnes. From the yearend report, the CWB tells us 89 % of farmers sold of under $7/bu (I assume local price) or $8.50/bu port: 8 % for $7 to $10/bu (local), and 2 % for $10 to $15 and 1% for over $15. My back of the envelope (maybe better than back of the cigarette package says the weighted average price farmers sold was between $7 to $7.50 local price or about $8.75/bu at port. The CWB is not specific on grade so I am going to assume an average distribution. %8.75/bu port works out to $320/tonne. Long and short of the analysis there is well over a $1/bu that has disappeared somewhere either as a result of planned hedging processes or futures pain (pulled out the contingency fund). Lots of assumptions I know so I look for feedback.

[charliep]

actually the answer to our questions is on page 61. The revenue part shows the transfer to the pooling accounts. The expense side shows the cost of FPC and DPC programs.

contracted amount paid to farmers was $1.26 bln or in dividing by the 4.5 mln tonnes (realizing all grain but weighted to wheat) was about $280/tonne. Hedging losses were $467 mln or close to $100/tonne. Interest and admin were about $14.4 mln or about $3/tonne. The net loss was $20/tonne.

[charliep]

My assumptions were too simple in the first example. also likely price distribution not based on a weighted delivery volumes but rather the contract reference grade. May also only be 1 CWRS 13.5 protein.