A marketing question.

[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?

[charliep]

An announcement on the CWB adjustment payment should occur by July 1 based on a 6 week period between the time a CWB recommendation is made to the federal government and implementation.

From the May 19 CWB Bulletin

The CWB has submitted a recommendation to the Government of Canada for an adjustment to farmers’ initial payments. Pending timely approvals, payments will be issued to producers in early July. The recommendation is $20 per tonne for CWRS, CWES, CWHWS, CPSR and CPSW and $55 per tonne for CWAD (except No.5 CWAD).

[charliep]

The damages are specified in the contract terms.

http://www.cwb.ca/public/en/forms/farmers/wsp/09-10/0910wsp_tc.pdf

To the question:

In the event that the producer is in Default, the CWB may void the contract for the Wheat and any other contract
between the CWB and the producer and/or the CWB may restrict the producer’s delivery opportunities under such
contracts.
c. Further the producer shall pay liquidated damages to the CWB to compensate the CWB for its actual losses
incurred as a result of the producer’s Default under the delivery contract.
d. Liquidated Damages will reflect the CWB’s costs of administration, demurrage charges/delivery penalties, and lost
opportunity as a result of the Default and shall be calculated on a per tonne basis. The minimum damages
assessed by the CWB will be $6.00 a tonne and the maximum damages will be $25.00. Collection of costs,
including legal fees on a solicitor and client basis may also be charged. As well, upon delivery, if the grain does
not meet the specifications for Wheat outlined above, the CWB will buy the grain at current grade, and all past
storage and Premium payments will be collected back from the producer.
e. The liquidated damages assessed hereunder will be paid in addition to any liquidated damages which may be
assessed pursuant to any other contract entered into by the producer and the CWB.
f. The producer and the CWB agree that liquidated damages determined in this manner are reasonable and are a
genuine pre-estimate of the actual damages the CWB will incur as a result of the Default by the producer and that
such damages are not a penalty.
g. Liquidated damages may be set-off by the CWB against any and all amounts that may become payable by the
CWB to the producer, pursuant to the CWB Act and/or against the proceeds of any and all deliveries made by the
producer under the producer’s delivery permit, or under any and all delivery permits in which the producer has an
interest. Any such delivery permit book may be so endorsed.

[charliep]

Sorry for monopolizing thread but you ask a really question (or at least you make me think) checking.

Why is it that farmers are asked to carry high quality wheat between crop years with all the risk associated with it? A farmer should have the right to carry this grain but they also deserve the full premium and payment for this high quality product when it is sold.

From my perspective, your customers (Japanese, UK, US, Canadian, etc) should be forced to take full delivery of any inventory they need to tide them over to new crop availability (farmers paid plus responsibility for commercial storage even to the extent of owning condo storage).

Reason I went on this rant is reading over the rules on the high protein storage program and from there the permutations and girations the CWB takes to satisfy customer needs July to October to satisfy best customer needs including backhauling wheat far east prairies (or worst Thunder Bay) to west coast. If things carry on the way they are today, then there is a real risk this will occur again with farmers picking up the tab.

sorry for ranting and taking off topic.

[charliep]

As a partial answer to your question checking, I would pro-actively get someone like SGS out to probe the bins and certify grade/protein. Write off some of the benefit of the $10/tonne ($15 if over 15 protein) premium against this expense. Even better, have the CWB or the grain company who will be packaging grain for these higher valued customers pick up the tab.

Also note the $1/tonne monthly carry. As tom4cwb highlighte previously, this is not nearly enough to cover interest, storage and risk. But then everyone here tells me cost of carry is not relevant to grain marketing.

[ado089]

Choice2U, a couple of the analysts I follow say to ride this up to about 9,600-10,200 on the dow, but to be out stocks by the end of July-mid August. This is predicated on unemployment leading to prime mortgage and credit card defaults making the subprime crisis look like a picnic in combination with baby boomers switching over from spending to saving.