The US Market, Part 2

I’m being told my price comparisons (CWB pool returns to US average prices) aren’t fair.  Two issues were mentioned:

-          “the market doesn’t sell all year round.  Usually, the market is lowest when the most tons have been sold.”

-          “…you do not have the average price that was actually received by the American farmer who sold on the open market.”

The CWB uses what they call the Wheat Pool Pricing Model which establishes the pricing pace for the pool.  (Page 45, 20070-08 Annual Report).  If they can’t sell (and price) grain to keep to the pace, they sell futures.  If they’re selling more than the pace allows, they buy futures.  They don’t say explicitly that they’re shooting for the crop year average, but I doubt the approach would take them far off it.

From the September 23 commentary for the 2010-11 PRO:

At the time of this PRO, the CWB has priced approximately 24% of the expected 2010-11 crop year deliveries of wheat.  A pricing level of 60% is anticipated by the end of January."

24% priced at 15% through the crop year;  60% priced 50% through the crop year.  Are they skewing pricings early in the crop year?  Is that what you would do this year?  Just asking.

Based on the pricing model and that they say they get premiums, it would be reasonable to expect better than average pricing from the CWB.

The other comment said I hadn’t considered what the US farmer had sold for.  That’s right; why should I care what the US farmer does when I’m not arguing to get rid of the CWB.  I look at US prices to get an idea what the average market price is – not because without the CWB you could sell into the US and not because without the CWB, that’s what you could expect.  We compete with the US in offshore markets – why do they get more on average?  I figure you deserve better than average from the CWB and it doesn’t matter how you spin it, you ain’t getting’ it.

Forget about averages for a minute.  I would like someone to explain why the pool return isn’t just below average; it’s often below the lowest market price (DTN) for the year.  Take a look at this chart.  Practically every year the Final Pool Return (the blue line) is below – or well below the lowest DTN price (the red line).  Most years, the US farmer could sell it all at the lowest price of the year and he’d still be getting better prices than you.

 

To those who think I’m trying to dismantle the CWB – I’m not.  I’m trying to help you make more money.  If you can figure out how to do that with the CWB, so be it.  But the way I look at it, if you want to keep the CWB, you better start looking at it more critically, instead of just accepting it as gospel. 

CWB Annual Reports

DTN Index Prices