Comments/Strategies on CWB Producer Payment Options

[charliep]

Was reading Mike Jubinville/ProFarmer Canada information and he talked about the CWB PPO strategies.

Highlights from my side are the wide discount between the PRO and the FPC. Currently the FPC is a $50 to $60/tonne discount to the July PRO. Likely means the August PRO has a long ways to come down but it also raises the issue of how much it costs to manage risk around the PPO products and how much is being harvested so to speak to top up the contingency fund.

On the basis side, the adjustment fact is positive (about $3/tonne), indicating existing sales into the 2009/10 pooling year are above current levels/CWB forecasts. The basis itself is about $5/tonne under the December - tighter than has been seen in the past couple of years.

[charliep]

The basis refers to CWRS/CWWS/CWES by the way. Will let you look at the other classes on your own.

[Hopperbin]

I would suggest don't touch a CWB PPO with a 100' pole this year unless you know you have top grade already. CWB will screw the hell out of you and top op the pool account if you have #3 or worse.

[charliep]

Agree.

If you are comfortable on grade, then I might look at a basis contract for some portion on one of the deferred months (hold pricing open during the last half of the crop year) with a caveat there is nothing all that positive in the wheat outlook.

I would also look at initial payment spreads. As an example, the current initial payment spread between 1CWRS 13.5 and 3 CWRS is $34/tonne. If western Canada had a frost and you believe that this spread could widen (lots of 3CWRS that has to be dumped into markets in competition with plentyful supplies of mid quality wheat and premiums for upper end milling quality), there would be incentive to deliver against an fpc. Highlights the stupidity of having grade and protein spreads for an FPC based on initial payments versus market based ones.

Didn't do this year but always interesting to compare initial payments to PRO values both in June and current ones.

1CWRS 13.5 initial port - $186.30 or a local Alberta of $3.75/bu. June PRO (when the recommendation would have been sent to the federal government) $286/tonne port. Initial payment relative to the June PRO - 65 %.

Likely August PRO 1 CWRS 13.5 if released today - $250/tonne (my guestimate) or current relationship of 75 % versus initial.

cost of an 80 % EPO (CWRS) - $20/tonne.

[charliep]

Hopperbin

Will note your comment on the feed wheat. Don't under any circumstance ever deliver feed wheat to the CWB under any one of these programs. If you have a risk of feed, stand on the sidelines.

If you do have feed wheat, make the CWB offer cash prices and guaranteed delivery contracts the way I suspect they do with feed barley (did anyone really deliver feed barley this year to the pricing pool?). A real price and delivery period that can be compared to the domestic feed market.

[TOM4CWB]

Dear Charlie,

I am slow I know... but,

If the CWRS CWB basis price adj. factor is $2.68/t and the basis is
-$7.61 that would tell me that if I price the basis... it is under -$5.

So what is the difference the CWB calculates in between now and a couple of months ago... when the basis was
-$30/t?

Why is the flexpro below the B/FPC? The logic should have been... if growers signed up before the prices dropped... they should get a premium... not a discount?

I may be just a stupid farmer.... but can any rational person explain these programs?

[charliep]

I can't explain the CWB basis except when I treat as a CWB fee/deduction to
cover their perceived risk around managing risk around the pricing pools.
The basis levels are arbitrarily set by the CWB without competition and have
nothing to do with the market or farmer pricing.

[charliep]

I can't explain the CWB basis except when I treat as a CWB fee/deduction to
cover their perceived risk around managing risk around the pricing pools.
The basis levels are arbitrarily set by the CWB without competition and have
nothing to do with the market or farmer pricing.

[roju6]

I've been discussing this with my Ag-Chieve advisor, and he too says the only logical options at all this year are a basis contract or the pool but tells me to wait on a basis contract until I know the grade because of the whole feed issue.
He said if they were seeing some solid bottoming action in wheat they would be more inclined to look at a basis but so far Minneapolis just keeps dropping too.
As for the FlexPro contract, likely one of the reasons that price is lower than the fixed price is because you have all the way until the end of next July to price it out, where the fixed price ends the end of October.
Ag-Chieve was pretty much bang on with their basis recommendation last year and pricing it out on June 2, beat the pool by 29 cents. Waiting to see what grade I get and hopefully do the same thing again.

[charliep]

Just to highlight (at least to date), the flexpro is a fpc
without an adjustment fact for after Aug. 1 pricing.

The flexpro yesterday (Aug. 19) was $216.78.
Converted futures - $221.79. FPC basis excluding
adjustment factor - $5.01. Subtract the converted
futures from basis and the flexpro and the fpc are the
same. Only difference is the $3.37/tonne adjustment
factor to reflect the fact existing sales are making a
positive contribution to the forecast pool returns.