Do you want to know a secret?

[mbratrud]

pilpilsner - Sell high for that year? Decade Century? How long do you hold your grain? Do you have an infinate amount of cash and grain storage.

Be Right Sit Tight? This explains alot about how a lot of Farmers are poor Marketers.

What'r right? Do you know what the Turkey lentil crop is going to look like in 6 weeks, or if the Argentine Farmers will go on strike over Export Taxes?

Wilagro - well let me just say Alrighty then!

[pilpilsner]

Board supporter?Not quite.

Just pointing something out.

In the most volitiale marketing year ever,would you not expect hedging losses?

I wont get into what that exceptable level of loss is.

Mbratrud,i'm an active trader and stand by my quotes.

Be right,sit tight as opposed to be wrong,move quick?

You must have scratched your head till it blead when corn shot through the roof after the huge crop was taken off.

[charliep]

will note the CWB question is not about hedging losses but rather the CWB execution of their risk management program.

to separate the two parts, the CWB lost $226 mln on their discretionary trading account (page 45 of the annual report). I will let you define whether this discretionary trading (yes the CWB does use futures wilagro) was speculation or hedging. Should the CWB make the decisions on discetionary that ultimately cost farmers $10 to $15/tonne or should they left this money in farmers pockets to spend as they saw fit (which may have included options strategies).

Second issue - On the hedging losses on the producer payment options/contingency fund, total cash outflow to cover hedging activities was $467 mln (page 61). $89 mln of this fell outside the explanation of market moves and resulted in the deficit. so the question is not so about hedging losses but rather the execution of the CWB risk managment strategy and the allocation of pain in how the deficit was financed.

[TOM4CWB]

Charlie,

There is a third issue:

The CWB used the basis (that was at historic high levels) to cross subsidise PPO hedge losses. No accounting for this in the Annual Statements... so we don't have ANY accountability on what the CWB did.

…”prices offered to producers are based on nearby prices. In an adverse market,
the nearby price offered is higher than can be achieved
by hedging forward in the futures market.

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."
..."To uphold the principle communicated to farmers that the
PPO programs will operate independently of the pool,
the board of directors has approved a policy that provides
for repayment of funds to the pools from the PPO programs
when the Contingency Fund is in a positive balance.
Repayments to the pools cannot force the Contingency
Fund into a negative position."
Page 67

Can any rational person call CWB 'risk management' a simple hedging program?

The CWB sells grain like they are 'half pregnant'. Are they hedging, speculating... or both?

I don't think even they themselves know!

[TOM4CWB]

The first CWB Annual Report quote above is from pages 61-62

[checking]

Secrets to farming success - starting out, grow a wide variety of grains to build inventory, as at least one a season will provide an excellent return - invest in lots of grain storage, as you're going to have to have patience to wait for grains that can't be moved except at a loss, their season of scarcity will come - grow what you don't have in storage to replace what you sell - invest in lots of fuel storage tanks, fill them in this oil price environment - have a 1A licence, a super B, and an inexpensive reliable highway tractor to deliver your own grain when opportunity knocks -and never contract what you do not have in storage. Think it can't be done on your farm, think again. It can be done, and it works.

[charliep]

To help agstar and wilagro with their explanation of the CWB discretionary trading, it does relate to the CWB sales pace relative to the assumed one (Wheat Pool Pricing Model as explained on page 45).

To keep on topic, the best way to turn a good price into a less good price is to trade futures and options from the speculation side - likely to loss money. Perhaps the best marketing strategy is to sell at regular intervals during the year for good prices and simply deposit the money in the bank.

[Zaphod]

When prices are great, they won't stay that way. When they're horrible, they won't stay there either. Markets eventually converge back to the long-term average.

[mbratrud]

pilpilsner - OK

[classicalliberal]

Wilagro, I wish you luck in farm marketing if you are not interested in using the tools available to help manage price risk and lock in profits. If you hold your grain in bins waiting for a better price you will likely have to sell at a low price and sometimes a high price. I have no sympathy for people who don't know how to use the tools available and who end us selling in low priced markets.

In terms of making money off farmers, I have said this many times: why is it bad to make money from farmers? No futures traders have ever taken money from farmers, in fact you should be thanking the index and hedge funds who blew the markets out of proportion for the last two or three years. They were the ones buying $16 canola, $7 corn, $15 soybeans and $15 wheat.

Pray that the funds return for your sake.

[classicalliberal]

There isn't such thing as hedging loss, certainly not to the tune of 100 million or whatever the CWB lost. The only way you can lose money "hedging" is being a grain merchant by buying grain at a high basis and reselling it at a low basis. That would constitute a "hedging loss."

If the CWB had shorts in the wheat market, they should have been able to sell the cash wheat higher and thus offset their 100 million futures losses. The only thing that I can think they did is speculate that the prices were going down.

[classicalliberal]

Tom you are right, I noticed that as the market went higher the CWB basis got cheaper but when you went online in the US elevators, their basis for hard red spring wheat was $4/bu above the minneapolis price while ours was $2.5 under the minneapolis price.

I guess it must be the transfering of wealth from one group to the other, very typical in many aspects of this country (yes I know it could be worse by living in most other countries).

[TOM4CWB]

Classy;

"The only thing that I can think they did is speculate that the prices were going down."

Guess who bought high... and then held Long positions held while the market tanked. That is a kind of a hedge loss... and only they could afford... with our money backing them... to throw $$$100's of $Millions away.

[TOM4CWB]

Classy,

Why do you think they said... "In an adverse market,
the nearby price offered is higher than can be achieved
by hedging forward in the futures market."

sURE LOOKS, SMELLS, AND SOUNDS LIKE A LONG POSITION TO ME! tHAT IS HOW THEY EXTEND SELLING THE POOL... AFTER THE MAIN BODY OF 07-08 GRAIN WAS SOLD BY THE END OF JAN 08.

[Fransisco]

pilpilsner said," In the most volatile marketing year ever,would you not expect hedging losses?"

No, I would not. If there are losses then you're not hedging.