A marketing question.

[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.

[Choice2U]

Thanks. For anyone concerned about this being a marketing thread, I will now consider this when deciding on whether to lock in the MGE futures on my CWB basis contract. The MGE Dark Northern has been trending down the past week but is up significantly today so will it continue to go up and resume the longer term trend or were we at a peak and down is the new flavour. I have until June 26 to lock it in. Any suggestions would be appreciated.

[charliep]

Likely the poorest short term forecaster here but
will give my two bits.

Start off with the USDA report which is basically
nothing new on wheat. Did drop wheat wheat
production a 1 MMT which was basically Canada.
Market participants will look at for about a second
and then put attention back to weather outlook.

http://www.usda.gov/oce/commodity/wasde/latest
.pdf

Today will be critical. A continuation of yesterdays
rally signals better things ahead. Failure to hold
suggests just the opposite. Markets stable over
night.

I am optimist short term as ado suggests but would
have my price targets in place with regular review
to ensure relevant. I like the area $7.75 to maybe
$8 which ar the recent highs for a target price.

If not or if the market rallies, run a trailing stop
behind your pricing (maybe 25 cents). Based on
yesterday, a MGEX July close below $7.25 means
price. If prices rally to $7.75/bu, a close below
$7.50/bu means sell. Etc.

Short term forecasting a head of a contract
deadline is what I always find most difficult.

What would others do?

[charliep]

mcfarms

Talked to the CWB. You still have to let the CWB know which crop
year you want in prior to June 30 even though you might deliver
to a domestic processor after July 31 but apply against a 2008/09
contract series.

A caveat though is that as long as you have filled 90 % of your
2008/09 contracts, you can make the choice to deliver and sell
into 2009/10 using new crop delivery rights. could use up early
CWB delivery opportunities - not 100 % sure on how domestic
millers handled on delivery contracts.

Still like the idea of pricing out old crop much better.

[checking]

The word "ouch" comes to mind. Charliep, you are the one guy we can always count on for an answer-opinion. Much appreciated. The more I use multiple year storage, the more I believe I'm doing the right thing. The less I have to deal with the CWB which has been one year (2007-2008) out of ten, the more I know I'm doing the right thing.

[charliep]

Today's action in the wheat (particularly MGEX) would make me very nervous about pricing out over the next couple of weeks. Wouldn't necessarily put the trigger today but I would be nervous.

On the theory of sell high/buy low, I might look at options strategies. That is, buy calls on market dips and be prepared to price on any MGEX rally over the week and a half. You can carry your pricing window into July then.

Again a caveat is you are close to a delivery month and any thing can happen - particularly in the summer weather silly season.