Changes to Durum FPC

[charliep]

Noted the following from CWB Grain Matters - page 6.

Durum producers will soon have an enhanced pricing option. The durum
FPCPlus operates in the same way as the existing durum FPC. The main difference in
the new program is that a slightly larger risk discount is applied up front, and there is the
potential for a portion of the discount to be rebated at the end of the crop year.
“Durum producers are looking for a more attractive pricing option, and we expect the
new durum FPCPlus will be an improvement over the current durum FPC,” says Melvin
Pawlyk, CWB manager, Producer Payment Options.
“It is a similar program that allows us to manage the program risk more effectively while
offering a potential rebate of any unused portion of the risk discount at year-end, after
all marketing is complete.”
In order to increase interest and participation in the existing durum FPC,
a number of options were considered in consultation with farmers. A major
challenge to creating effective durum Producer Payment Options is that there
is no durum futures market in which to hedge the risk of operating the program,
as there is for wheat.
FPCPlus signup begins June 1 for the 2009-10 crop year. Contracts previously
signed up under the existing durum FPC will be transferred to FPCPlus.
More information is available at www.cwb.ca by clicking Farmers > Producer
Payment Options.

Interesting. If the CWB can do this on the durum FPC, why not return profits from the EPO contracts?

[charliep]

Even better, have a cash plus program for durum. That is, match domestic/export sales against farmer pricing and pay out 90 % of an actual transaction value.

[charliep]

Why does the CWB put out these goofy programs?

I note from another thread that farmers can make canola marketing decisions using price signals and basis.

If the industry average basis for canola (Saskatoon) was $67 under, I assume there would be riots in the street (should be). And yet a durum $67/tonne discount to the PRO (recognizing a forecast) with a promise of some money back if there is extra in the durum fpc pot the end of the year is acceptable.

Even better question, where does the money go from the discount? Most grain companies would self price insure this program with the discount deposited into revenue. Is that what happens with durum FPC discounts?

[charliep]

If you locked in a Saskatchewan based durum fpc (1cwad 13 protein) today, you would be accepting $4.50/bu next fall/winter.

[roju6]

I believe it said any revenue from this program is going towards the contingency fund. Guess they have to make up that loss from last year somehow..

[charliep]

roju6

Note your comment about transfers. Interstingly, the CWB shows a $9 mln surplus being carried forward on their EPO programs (page 23 of the Feb/Mar Grain Matters). This is separated from the losses on the FPC programs ($105 mln). Doesn't do any good but I highlight where the other money come from that financed the contingency fund including both the direct and indirect transfer from the 2007/08 pooling year.

[charliep]

Know people are busy but I am take one other quote out
of the April/May 2009 Grain Matters and ask if this is
true? It seems to me to give the CWB to make tiny
changes to programs that have minimal impact on
contract performance/value and say they are somehow
responsive. The way farmers comment on contracts is
not to use them and durum is a good case in point -
virtually no one has used the durum fpc over time.
Perhaps a CWB performance of usage by farm clients (i.e.
number of farmers/tonnes) should be a performance
measure used in the annual report.

The quote 1 column page 2.

Quote Larry Hill - "Wheat, the old saying goes, is 13 per
cent protein and87 per cent politics. If I’ve ever doubted
it, the past few months have proved the truthof the
saying. In a year of record returns for producers $7.2
billion through the CWB– the focus from some federal MPs and farm groups has been almost exclusively onthe
losses in the CWB’s Contingency Fund. These losses took
place during a period of incredible volatility, when
markets moved more inone week than they had in the
previous year.

Given the level of attention paid to the Contingency Fund,
I expected this to be the hot topic at the Farmer Forum
meetings directors held across Western Canada in
March. In fact, as I heard at my own meetings and from
most of my board colleagues, this was just one of a
dozen issues that farmers wanted to discuss." end quote

[roju6]

I find it interesting how to date there are only 17 FPC Durum contracts signed for the 2009-10 crop year, and this program is going to increase the discount off the already low FPC by 10-15%.
Is it realistic to expect more people to sign these contracts now being lower priced than the FPC that was already available?
And then they actually put into print that "farmers will now have the added benefit of receiving a rebate of the unused risk discounts under the new program putting more money in farmer's pockets." Basically they will take a discount, and you might get some of that back later, but the fact remains it's lowering the price of the contract from where it already is which is low in itself...