Did you know ... that the CWB will defer (delay) shipping on a contract to a customer, at the customer’s request, at no additional cost? (I've heard they will defer shipment by as much as a year at no cost to the buyer.)
Yet farmers have to pay for the privilege. To roll a basis contract (BPC) from one futures month to the next, the farmer pays the spread in the futures; to buy out of a contract, a farmer is assessed a buyout cost plus an administration fee. Also, if a farmer is in default, he is fined.
Did you know ... that the CWB will ship higher grades than what the customer’s contract specifies with no increase in price?
Yet the CWB will often not accept lower grades from farmers, even with a lower price. And if a farmer delivers a lower grade than what was contracted, he is often penalized harshly.
Did you know ... that the CWB will sell to customers on a true market-based unpriced basis, for deferred delivery at the buyers call?
Yet farmers have to pay for the privilege. To roll a basis contract (BPC) from one futures month to the next, the farmer pays the spread in the futures; to buy out of a contract, a farmer is assessed a buyout cost plus an administration fee. Also, if a farmer is in default, he is fined.
Did you know ... that the CWB will ship higher grades than what the customer’s contract specifies with no increase in price?
Yet the CWB will often not accept lower grades from farmers, even with a lower price. And if a farmer delivers a lower grade than what was contracted, he is often penalized harshly.
Did you know ... that the CWB will sell to customers on a true market-based unpriced basis, for deferred delivery at the buyers call?
Yet the CWB does not buy from farmers on a true basis. The basis in the BPC is not market based; it is a derivative of the market PLUS the impact of the sales previously made by the CWB (including both basis and futures) PLUS arbitrary adjustments by the CWB to reflect its view of risk.
Did you know ... the CWB borrows at government rates (call it 0.5% for argument’s sake) and offers credit to customers at “commercial” rates (call it 4%)?
Yet the CWB does not offer credit to farmers. (The Cash Advance Program is a federal government program administered by the CWB).
It can be argued that EPOs are a form of credit since the CWB is advancing you money that, under normal circumstances, you wouldn’t get until much later. If you think about the EPO payment above the Initial as credit, the discount charged by the CWB can be considered as the cost of that credit – or interest. So the additional payment on delivery on a 100% EPO on feed wheat, for example, costs an estimated 11.0%. (The irony is it's your money in the first place.)
On FPCs, the CWB pays “incremental payments” for deliveries called later in the year. According to the CWB these are reflective of the time value of money. They work out to about 0.3% - a far cry from the true “time value of money” for farmers.
Bottom line - it's better to be a CWB customer than a CWB “supplier”.
Yet the CWB does not offer credit to farmers. (The Cash Advance Program is a federal government program administered by the CWB).
It can be argued that EPOs are a form of credit since the CWB is advancing you money that, under normal circumstances, you wouldn’t get until much later. If you think about the EPO payment above the Initial as credit, the discount charged by the CWB can be considered as the cost of that credit – or interest. So the additional payment on delivery on a 100% EPO on feed wheat, for example, costs an estimated 11.0%. (The irony is it's your money in the first place.)
On FPCs, the CWB pays “incremental payments” for deliveries called later in the year. According to the CWB these are reflective of the time value of money. They work out to about 0.3% - a far cry from the true “time value of money” for farmers.
Bottom line - it's better to be a CWB customer than a CWB “supplier”.
thanks again; for the knowledge over the power that I do not have!!!
ReplyDeleteAccording to Farmstars yesterday, only 43% of us farmers decided to vote in the recent director elections. Classic case of getting the representation one deserves, is it not? Impossible to say how the absentees would have voted, but with the kind of info that's obviously out there, it makes no sense to be happy sitting on thumbs and accepting the status quo. The status quo is a joke.
ReplyDelete"the CWB will defer (delay) shipping on a contract to a customer, at the customer’s request, at no additional cost? (I've heard they will defer shipment by as much as a year at no cost to the buyer.)"
ReplyDeleteI would love to hear details of an instance of this occurring and how big a break the CWB gave the customer.