CWB - FPC 09-10

[Choice2U]

Mar 17 - Minn. price - $8.23 cdn less 37 cent discount = $7.85 net.
Mar 19 - $8.01 - 36 cent = $7.65
Mar 24 - $7.83 - 41 cent = $7.42
Mar 31 - $8.06 - 49 cent = $7.56
Apr 1 - $8.04 - 51 cent = $7.53
I have never been able to understand the CWB's calculation of their discount. Since Mar 17, the Minn price has bounced around but the CWB discount has steadily gone up. What gives? It's one thing trying to read market signals but the CWB discount is like trying to guess what the deer in your headlights is going to do. Does one just pick a price eg. $6.00 net FOB elevator (ie. less approx. $1.60 elevation, handling, freight, etc.) or does one keep informed of the S/D picture, weather, exports, etc. and hope that if there is a rally, the CWB discount won't take it all away from you?

[Ron]

I pick a price I like and if the FPC hits it I lock in an amount I like. kind of like a open market canola contract without a delivery period or set discounts for quality. Doesnt sound as good as the open market but its better than the pool (for me at least)

SCREW THE CWB

[charliep]

Just a reminder that the FPC contracts/basis are not related to a
cash price/an individual futures month but rather a relationship
with the most recent pool return outlook/managing risk across
futures months in the whole pooling year. Looking at the
historical charts the CWB provides, basis tends to take volatility out
of the FPC contracts (a counter weight if you like).

Also note that a part of the basis is being used to repay the
contingency fund deficit from 2007/08 and increase it back
towards $60 mln. Indications are that the deficit has been repaid
in the 2008/09 crop year (current one) and this process is likely to
continue into 2009/10.

[charliep]

Will note the CWB explanation on the March PPO and basis commentary (worth reading). www.cwb.ca

The FPC is affected by world market factors over the period of time when the 2009-10 crop is being sold. A particular futures market and month will be affected by a different set of factors and for a much more specific time period. As a result, the December basis levels for a particular class could change significantly.