CWB conference call on contingency fund

[Fransisco]

CWB CONFERENCE CALL SHEDS LIGHT ON CONTINGENCY FUND DEBT

Airdrie, AB. - February 20, 2009: A conference call held Wednesday by the
Canadian Wheat Board (CWB) revealed startling revelations for farmers. As shown in their 2007-2008 Financial Statements, the CWB reported losing at
least $169 million as a result of "discretionary commodity trading activity" last year as part of their marketing plan for non-pooling programs such as PPO's. "This is bad enough," said newly-elected Western Barley Growers Association (WBGA) president Brian Otto, "but the CWB admitted on the call that these losses, which should have been allocated strictly to the Contingency Fund, were partially offset by taking $25 million of farmers' money out of the CWB Pool accounts. Pool account money from whatever source is farmers' money. It is not the backstop for separate and distinct CWB operations such as the Producer Price Option program. It was absolutely clear from the beginning of the PPO program in 1999 that such programs should operate "independently of the Pool account operations". That means you
shouldn't be allowed to take farmers' Pool account money and apply it to the
Contingency Fund debt", continued Otto.

"The CWB Act is very clear that there is no limit to the amount that the Contingency Fund can be in deficit", said Doug McBain, WBGA Director. "On
the call I asked why they would take farmers' Pool account money when there
was no reason to do so. If the Contingency Fund has no limit on the loss it can carry, what was the justification in using farmers' Pool money to pay the losses in the Contingency Fund? I was shocked by their answer", said McBain. "We were told by the CWB that it was 'prudent risk management by the Corporation", Ward Weisensel, Chief Operating Officer explained on the call
that the CWB was concerned it might experience problems accessing credit for day to day operations of the corporation if they carried that large a debt in one account. "We strongly disagree", declared McBain. "Surely the intended use of the Contingency Fund within the CWB Act wasn't to backstop the day-to-day operations of the CWB. Farmers' money should be returned to the Pool accounts and the Contingency Fund carry its' own loss as set out in the Act."

"It's obvious that the PPO program is not actuarially sound", said Brian Otto after the call. "It will take years of wide basis and high margins from non-Pool account programs to generate enough funds to repay the money "borrowed" from the Pool accounts. Farmers who had money taken from their Pools this year may not be in the same Pools in years to come as the borrowed funds are repaid, and they want and deserve their money now. The Pools should not be
financing losses from non-Pool programs. It is our understanding that the Contingency Fund was not to be funded by any withdrawals from Pool accounts. We would suggest the Minister Responsible for the CWB consider a full forensic audit of CWB operations and trading functions either by an independent body or
perhaps by the Federal Finance department to get to the bottom of this misuse of farmers' money," concludes Otto.

Western Barley Growers Association is a strong voice for a vibrant, market
responsive barley industry in western Canada.

[Fransisco]

So why is it that we are only hearing about the money taken from farmers pool accounts from free market farm groups like the barley growers?

Why is there no outrage from the left side of the agri-lobby?

Does the money in the pool accounts not belong to the farmers who put their grain in the pools?

Are they really in favour of money from pooling being used to subsidize those who want to price their own grain?

What's up guys?

[TOM4CWB]

Fransisco;

Could it be... that the CWB... is only telling half the story?

13mmt pool... 4mmt PPO so why should 'discretionary' losses be taken of PPO FPC/BPC/DPC? In no way... could this be justified in my opinion.

What about trading (Hedge/Basis) losses created by 'grain buyers'... and not 'designated area' grain growers in PPO cash products?

CWB 07-08 Annual Report page 62:
” 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.”

No accounting is provided... WHY?

[silverback]

This is garbage. Plain and simple.

I am imagining in my head their party in Calgary where they discussed ways to make the board better for the average farmer while in their heads they know how bad they shafted us.

It's time for a tea party.

[furrowtickler]

I'll bring the beer!

[bucket]

Silver

You make a good point - no talk in calgary about how bad it was. They were talking about providing high speed internet services.

[redbaron]

Re internet. Somehow the CWB got a hold of my email address and now getting weekly junk mail. That is what I call their informative marketing updates.

[parsley]

redbaron,Are you sure I didn't sell it to them? LOL

[checking]

Considering all the high priced talent that farmers paid for to attend the Calgary party, does anyone know if the plebs out in the country side could have accessed the sessions, tutorials, and Q and A via internet. It would appear from CWB summary that most of the participants claimed to have access to high speed internet. I would think that a wider audience should have been able to listen in, even participate, considering the ease at which a person can listen to live on line auctions.

[redbaron]

Thanks Parsley. You owe me a couple of glasses of red wine for that one - next time we meet.

[classicalliberal]

If they were really hedging, they would have an offsetting $160 million or whatever the number is in cash gains to offset that risk. Something tells me that they were not actually hedging.

[chaffmeister]

Let's cut through the BS in the PPOs:


04-05
Grain sales revenue minus what was paid to farmers: $17.7 million LOSS
hedge accounts: $56.9 million GAIN

CWB staff: "The algorithm in the hedging model worked extremely well this year, generating income over 3x the losses seen in grain marketing."

CWB director: "How did you make over $1.65/bu on the hedges when the most that the market moved last year was less than $0.70/bu?"

CWB staff: "The algorithm in the hedging model worked extremely well this year."

CWB Director: "Oh, OK."


05-06
Sales revenue minus what was paid to farmers: $4.6 million LOSS
hedge accounts: $1.0 million LOSS

CWB staff: "The algorithm in the hedging model was ineffective due to unforeseen market conditions".

CWB director: "How did you lose in both grain sales and hedges?"

CWB staff: "The algorithm in the hedging model was ineffective due to unforeseen market conditions".

CWB Director: "Oh, OK."


06-07
Sales revenue minus what was paid to farmers: $29.7 million LOSS
hedge accounts: $3.8 million LOSS

CWB staff: "Oops, I did it again".

CWB director: "Oh, OK."


07-08
Sales revenue minus what was paid to farmers: $392.9 million GAIN
hedge accounts: $471.1 million LOSS

CWB staff: "The deficit stems from the "extreme volatility" of futures and basis values, plus a forward inverse in market values from December 2007 to March 2008, which created risk-management issues for the PPOs, blah, blah, blah...."

CWB director: "I think we should get someone to look into this."


Ya think?!!

[classicalliberal]

more like the basis went against them or they bought cash grain AND bought futures at the same time which is double the exposure that their hedging algorythems can forsee.

[charliep]

I see lots of political digs and shots but encourage everyone to follow the money in the annual report. Also note this conference call was about the pricing payment options/the contingency fund. This is separate from the $169 mln/$226 mln on the discretionary commodity trading.

With regards to the contingency fund, read page 67 carefully and follow the money. Already done somewhat but to repeat maybe for my benefit to help me think (summarize page 92).

$9.2 mln was beginning balance in the contingency from 2006/07.

The loss during the year was $86 mln.

$20 mln was transferred in from profits on cash trading activities.

$2.1 mln was interest earning on feed barley from old sales.

$7.5 mln was money given back from the 2005/06 pooling year when the money exceeded the contingency cap and was deposited in the pooling accounts (farmers who delivered that year thank you).

$18 mln was brought in from the pools for reasons described as follows: "THE BOARD OF DIRECTORS DECIDED TO ALLOCATE REVENUE FROM THE POOL DEED TO BE ANCILLARY TO GRAIN SALES (APPROXIMATELY $18 MLN)."

$28.9 mln will be carried forward into next year as a deficit on the contingency fund books.

As highlighted in another thread, it would interesting to know the current balance on the producer payment option contracts and how much of the deficit will be paid off in the current pooling year 2008/09. Guess I have to wait for a year to find out.

[charliep]

Wrong year on the $7.5 mln was from 2004/05 (see 2004/05 annual report).