Charlie...Question on Oats SPE

[Riley]

I've heard that the SPE and Fall price for oats is based off barley. Is this true and if so...how will that affect this fall's price?

[charliep]

The Alberta fall price calculation for oats is outlined as follows in the AFSC documentation (also applies rye, triticale, and mixed grain).

Oats (3 CW)
Mixed Grain (Average)
Rye – Spring/Fall (2 CW)
Triticale – Spring/Winter (2
CAN)
The fall market price will be the spring insurance price times the same percentage change between the
spring insurance price and the fall market price determined for barley (1CW), expressed in $/kg.

source (page 10): http://www.afsc.ca/doc.aspx?id=2218

Agree not the best in the world but there is a struggle to come up with a way of either a cash market that can be followed/averaged during October or a consistent basis with CBOT oat futures. A problem (Alberta anyway) is the base grade is 3CW oats which is more or less irrelevant given most traded oats in Alberta doesn't use grade but rather a contract with specifications.

Any thoughts on improving this calculation would be appreciated. A pet project of mine is more transparency in pricing and from there improved price discovery.

[classicalliberal]

The Canadian price of oats in MB and SK has a 98% correlation to CBOT oat futures when it is converted to US dollars which makes sense since a lot are exported to the US. Why don't they use the CBOT prices?

[charliep]

Actually should look at CBOT oats futures again. Have looked at in the past but the correlation has been lower in Alberta. The issues are the insurable grade is a 3CW oat (which as I have said don't necessarily know what they are). Distance to the Minneapolis and US mid west oat milling market (high freight cost) and the the fact Alberta mainly produces high quality horse feed (markets California, Texas, etc. which has a different pricing driver also makes this relationship less direct to CBOT than what might be in MB/SK.

[TOM4CWB]

Dear Charlie,

We can have a look at this at AORTA.

Crop insurance takes a low quality risk aversion strategy... not like CWRS(#2) or Canola (#1). This stinks.

It is about time Oats, Rye, Triticale, Peas, Faba Beans, Winter Wheat... and our many other special crops get treated with equity. CPS/CWRS/Canola/Barley have double the coverage at much less cost.

If crop insurance means anything at all... in production decisions, it is having a massive negative environmantal impact because of political factors.

[charliep]

TOM4CWB

Alberta insurable grades have changed in the past (peas are blend of edibles and feed, specialty oil canola) based on farm organization requests and evidence that a higher grade is the most delivered quality. Insurable grades are different between SK., MB. and AB so you can also use this as an arguement. POGA or someone else would have to present evidence that 2CW oat (hate the grade specification so maybe just call milling/high end horse quality) is the main delivered grade and work with AFSC/AAFC on making the change.

[Riley]

So the designated field pea grade (3CW) is a composite of field pea and #2 edible prices?

[charliep]

Yes. From the AFSC website:

Half of the simple average of the weekly average feed-mill price for field peas in the Edmonton region
during the month of October, expressed in $/kg, as surveyed and published by the Alberta Grain
Commission, plus half of the simple average of the daily average grower bid spot price of 2 CAN
medium yellow field peas for the same date, expressed in $/kg, as published by STATpub.com.

Source: http://www.afsc.ca/doc.aspx?id=2218

[TOM4CWB]

Dear Charlie,

It is a pure political decision... to maintain CWRS and Canola graded (#2-#1) coverages on Crop Insurance... clearly these are not historical averages as growers every single year miss getting these grades.

The only time it even matters to production insurance... is when growers have a claim... normally once in every 10 to 20 years.

So the arguments made by AFSC end up to be political in the end... not based on production performance...

Even the high protein CWRS option offered is a political gim me for wheat growers.

Equal treatment for all crops... would mean if I need $250/ac Production insurance... I can buy it. Basket payment, basket assessment... if the average loss in our area on our farms...is $150/ac... we are paid this amount.

Production insurance can buy weather insurance and offer the top up $/ac the same as the hail rider to provide the basket approach... for actuarial soundness... if this is an issue.