A marketing question.

[bucket]

I have been doing alot of thinking on the tractor.

Here is my question.


Does a farmer push his 08/09 crop in to 09/10 pricing?

I ask this because the board has nowhere to go with the current crop - its sold. Is there more potential for 09/10 crop year given the current weather woes all over the globe.

Do I pay the fee (10cents/bu) and make this move?

[furrowtickler]

I would, you bring up a couple good points there bucket.

[dfarms11]

been wondering the same thing!

[ado089]

I would push it and take the EPO by early next year. We're in for a second stock crash followed by comodity devaluation. Inflation could be the only thing that could conteract that thought but I don't think we'll see that until lat 2009 early 2010.

[charliep]

Just curious why a farmer won't price out old crop and get long futures or some
other speculative tool. New crops PRO is at a slight inverse to old with a caveat
there will be a June and July PRO. From a cash perspective, you will get about 80 %
of an old crop PRO versus 60 % of a new crop one. If you go new pool, you have a
whole year of market risk with no way of offsetting. You are in full control of a
futures position whereas you have no control over CWB pricing/payment
processes. As with 2007/08, you also risk transfer of money to look after deficits
in the producer pricing options.

You guys almost convinced me that storing grain is a hedge (and/or insurance
option) provided you don't consider carry (interest, storage and risk) but no one
has ever explained why carrying crops between crop year pools is a good thing
unless there is a significant premium in PRO forecasts new crop over old. CWB
payments are not prices that reflect markets volatility (an average) and you assume
payment risk over an sixteen month period which includes risk from the 2010/11
crop year (wheat marketed in the May to July quarter in competition with new crop
northern hemisphere winter wheat).

[Choice2U]

ade089 - any guesses on when the next drop will be as I've put some investments into cash and am waiting. I'm sitting fine there but also have an unpriced basis contract on HRSW which would drop like a rock if the financial markets went lower so not protected there.

[Hopperbin]

Ditto on Charlie P Ado wouldn't you be at a loss to take an EPO in O9 over pro now 08 09.
08 09 Pro for 1cwrs 13.5 before deductions is 8.33dollars.
09 10 Pro for 1cwrs 13.5 before deductions is 7.76dollars.
Ado if you push it and take and epo after a market crash your going to get screwed big time. Screwed if the market stays the same also. In fact after the epo cost you are just basically screwed no matter what happens

[mbratrud]

Defer that decision for 4 weeks!

[charliep]

Actually you only have 3 weeks to make that decision and have some paper work to
do if you want to defer the pooling year into 2009/10. June PRO will provide your
best indication of CWB forecasts (currently a $15 to $20/t on new crop wheat and
$60 or so /tonne on durum).

Source:http://www.cwb.ca/public/en/farmers/payments/newpool/

Current program fees:
Wheat $3.75 / tonne
Durum $3.25 / tonne

This fee is effective from 2 p.m. Central Time (CT Winnipeg) on May 28, 2009 until
further notice. The fee could change daily at 2 p.m. CT (Winnipeg).

Settling 2008-09 deliveries in 2009-10

The CWB recently introduced changes to its guidelines regarding grain switching, or
pool year transfers (settling old crop deliveries in the new crop year).

On wheat and durum, there will be a per-tonne fee and an advance notice
requirement for farmers who deliver in the current crop year and then choose the
following year's pool return.

Switching grain from one year to the next creates uncertainty regarding pool size
and affects the pool returns of both the old and new crop year. The program fee will
offset these impacts and will be regularly updated to reflect changes in the Pool
Return Outlook (PRO) and market conditions. This fee will be calculated based on the
difference between the old and new crop PRO, current average sales values and risk.

Farmers who wish to price their 2008-09 deliveries of wheat or durum into the
2009-10 pool must advise the CWB between February 26 and June 30, 2009.

You can sign up using the New pool pricing sign-up application, by calling 1-800-
275-4292 or by contacting your grain company representative who can fax the form
back to us.

* New Pool Pricing is not available on Selected Barley and Feed Barley Storage and
Delivery contracts.

[charliep]

The differences between crop years are an inverse by
the way. Old crop is worth more than new crop.

[charliep]

Took a look at initial payments and impact cashflow.

Current initial 1CWRS 13.5 $219/tonne port versus a PRO of $306
(not likely to change in June). A recommendation has gone into the
federal government that should take the initial to 80 % of the PRO or
$245/tonne give or take.

Assuming 70 % of the new crop PRO ($285/tonne for 1CWRS 13.5
port) on the new crop initial, your 2009/10 initial payment should
be close to $200/tonne. You have $45/tonne less in your pocket
cash flow wise than selling today.

[mcfarms]

Charlie


What if delivery isn't made until into early august or later on some board grains becasue of end user needs?
Ie mill wheat?

[charliep]

A good question that I don't have an answer for.

I note there is the "Wheat Storage Program" and anyone with 1CWRS high protein
should read these and consider if you are carrying wheat between crop years.

It is interesting to note that a farmer has the full month of July to make a decision.

source: http://www.cwb.ca/public/en/farmers/contracts/wsp/


Program details:

early delivery opportunity in 2009-10 to compensate for lack of bin space for new
crop production
farmers can choose which pool year to price their WSP tonnes against (2008-09 or
2009-10)
farmers can sign up with a minimum of 80 tonnes
contract is accepted once the local elevator confirms grade and protein as No. 1
CWRS 14.5 and higher protein
farmers receive a premium after the contract sign-up is received at the CWB
farmers receive storage payments of $1 per tonne per month from the date of
contract sign-up until the cash ticket date or expiration of the delivery period,
whichever is earlier
CWB guarantees 100-per-cent acceptance of grain committed to the program
farmers are expected to deliver 100 per cent of tonnes committed to the program
CWB guarantees delivery by July 31, 2010 or sooner and once announced, farmers
have 30 days to deliver their grain
if no pool choice is made by July 31, 2009, farmers will automatically receive the
2009-10 pool return.
Wheat signed up under a 2009 WSP contract can be delivered against a 2009-10
PPO contract.

[mbratrud]

June 30th the deadline for the New Pool Pricing Option... Didnt realize that, as it has not been beneficial to do this the last couple years. I think with the discounts in place it would be crazy to do this year. I think if your bullish wheat your better off buying paper.

[checking]

Charliep, since protein in store can be a variable animal, and farmers would be hard pressed to find any local elevator to do their own bin sampling and guarantee the protein content for delivery sometime down the road, what outs, or penalties does the Board impose if the CWRS is not 14.5% or better?