Basis or Pool?

[Fransisco]

Fixed price contract sucks, so that leaves one with either throwing ones wheat in the pool or taking ones chances with a basis contract. Considering what the price of wheat has been doing and even though it's still lousy the basis is probably as good as it's going to get.

So what's the best option this year?

I'm leaning towards saying screw it and just put it in the pool and take my lumps with a below average price.

Opinions?

[Hopperbin]

My opinion which may not be worth much but I think the CWB will be trying to prop up the pool this year from the fixed and basis sales. I think the pro is grossly undervalued at the moment, just wait the CWB will come out glowing when they increase the pro later and screw everyone on basis and fixed.

[Hopperbin]

And they will do it because the can.

[parsley]

When an election is called.

[furrowtickler]

Yep, they will do it every time. Then they can pat them selves on the back about their tremendous marketing skills.

[Zaphod]

I'm not sure the pool is undervalued. Have you looked at a wheat chart lately? There might be even more downside yet.

[Fransisco]

And looking at it historically there are many years when the final pool price comes in at around the off the combine harvest price in the States.

Taking a basis contract would mean expecting the overall price of wheat would increase dramatically sometime between now and next summer.

I'm thinking we should get some kind of bounce, but I'm doubtful about how "dramatic" it might be when I look at global stocks.

[Hopperbin]

Not sure it is undervalued?
They dropped the pro on 1CWRS 13.5 protein to what some feed mills were paying for feed wheat. They dropped CWSWS wheat to 3.28 net to me. Even the feed mills and ethanol plants are paying more than that even after they dropped their prices over a dollar a bushel after the latest pro came out. Just maybe one can bargain for one hell of a trucking insentive this year so we can deliver to these outrageous prices.

[Zaphod]

I understand what you're saying about the domestic market, but I looked up some foreign prices to compare against the PROs (all FOB port position in C$ as of Aug 28)
US DNS 14% $253
France 11% $192 (not sure if milling)
Germany 14% $247
Germany 12% $200
Ukraine milling $178 (not sure of protein)
CWB 13.5% at St. Lawrence $246

Keep in mind that these prices were end of August and the market has lost over $20 per tonne since then. So the PRO was competitive then but is due for another decline unless wheat futures really rally.

[Choice2U]

I am looking toward a basis for the following reasons:
1. PRO will continue to decline every month for the next while. Their number is not tied to anything. Actually, it is to their best interest to push the PRO low, more farmers sell their marginal grain for feed/ethanol, etc., less grain goes to the CWB therefore the more cherry picking they can do in a grain glut and the better chance they come out smelling like a rose. If they kept the PRO up higher, more would chose the pool and the harder it will be for them to look good.
2. I am hoping that with depressed prices, an inverted MGE (CWRS only) market will occur as US growers won't want to deliver so the current month will be higher to entice delivery while future months will be lower reflecting the high inventory. Roll the CWB contract a couple of times to reduce its basis and then hopefully, we'll see some acreage battles between corn/beans which will pull up the wheat market to allow one to take advantage of the limited up market in March/April/May.

It's a crap shoot where at least you have a gun and are participating versus putting my faith in 423 main and watching. Does this make sense to anyone?

[Fransisco]

Wouldn't rolling it increase your basis?

[Choice2U]

Not if the market is inverted. This was the case last winter. I rolled it from Mar to May to July and made some $ (about $8/mt) that reduced my CWB basis. The MGE futures price was lower than the current month which made it work. If the market has a normal carry (ie. every futures month out is higher reflecting the time value of money or whatever) then my idea to rolling and waiting has no merit.