Farmers
February/March 2006
Daily Price Contract
The Daily Price Contract (DPC) was introduced for the 2005-06 crop year and is available for all seven classes of wheat. The program was designed to provide producers with an opportunity to capture a "daily cash price" for their non-durum wheat, based on the U. S. market.
Producers with a DPC can either deliver to the CWB or market their grain to the U.S., using a Producer Direct Sales (PDS) contract. If producers choose to deliver to the CWB they must offer their production on Series A, B or C delivery contracts and deliver in accordance with delivery calls. For producers wishing to market their grain to the U.S., the DPC in conjunction with a PDS can reduce pricing uncertainty and price risk on PDS transactions.
Pricing for a DPC contract occurs in two parts. Similar to the FPC, the DPC is offered as a flat price based on a reference grade, it combines the nearby U.S. wheat futures with a daily basis specific to the DPC program. Secondly, there are cash spreads for grade and protein adjustments.
Daily contract values pricing formula
Daily Price (of the reference grade) = DPC basis + nearby futures
The DPC basis is bases on average daily U.S. elevator prices from locations primarily in Montana and North Dakota. When combined with the daily wheat futures settlement prices, a reference grade DPC value is determined for each class of wheat. The CWB uses the nearby futures month from the relevant futures market to establish the futures component of the DPC.
Reference grades and relative futures contracts for the DPC
Wheat Class Reference Grade Futures Contract
CWRS No. 1 CWRS 13.5 Minneapolis Hard Red Spring
CWHWS No. 1 CWHWS 13.5 Minneapolis Hard Red Spring
CWES No. 1 CWES Minneapolis Hard Red Spring
CPRS No. 1 CPRS Kansas Hard Red Winter
CPSW No. 1 CPSW Kansas Hard Red Winter
CWRW No. 1 CWRW Kansas Hard Red Winter
CWSWS No. 1 CWSWS Chicago Soft Red Winter
Cash Spreads (grade & protein adjustments)
Cash spreads form the second component of the DPC. A set of cash spreads - based on all grades and protein levels - determines the producer's final daily cash price value. The cash spreads are used to adjust the DPC contract value to reflect the market value of the actual grade the producer delivers. There are 3 important factors to consider:
- Producers receive the cash price spread in effect on date of initial payment settlement.
- Cash spreads cannot be locked in before or after settlement.
- By applying a delivery to the DPC upon settlement, producers elect to take the DPC cash spread effective that day.
Pricing a DPC contract is completed in two parts:
Step 1: Pricing the base ("reference") grade. This can occur between 2:30 p.m. and 7:30 a.m. the next business day.
Step 2: Locking in the cash spread (premium/discount) for the grade(s) you deliver.
The lock-in is automatically triggered based on date of cash ticket settlement.
These steps can be completed in reverse order depending on a producer's pricing preference.
For example on July 10th a producer had committed 20 tonnes a DPC contract. After watching the pricing throughout the fall he decides to price his DPC on October 27 at $195.00 for the reference grade of No. 1 CWRS 13.5. The date is December 1 and his local elevator has space for his wheat and decides to deliver 20 tonnes of No. 1 CWRS 14.2. For December 1 the DPC cash spread is $12.00 for No. 1 CWRS 14.2 per cent.
| Payment option |
Contract value |
No. 1 CWRS 14.2 initial payment |
PPO additional payment (contract value less initial of refreence grade No. 1 CWRS 13.5) |
Settlement value before deductions on Nov. 1 |
|---|---|---|---|---|
| DPC | 195.00 | $142.00 | DPC additional payment calculation of |
|
| $195.00 - $135 = $60 | $207.00 |
|||
| +/- spread of $5.00 = | no further payments | |||
| $65.00 | ||||
| July 10 | October 27 | December 1 | Within 10 business days of December 1 |
Note: Calculation of the $5.00 spread payment. Initial of No. 1 CWRS 14.2 - Initial of No. 1 CWRS 13.5 = $7.00. This part of the $12.00 cash spread payment is paid at the elevator with the initial price. The remaining $5.00 of cash spread value is paid along with the additional payment.
Farm Business Representatives are willing to meet with farmer groups to hold PPO workshops. As well, you can call 1-800-275-4292 for more information on the PPOs.