Farmers
Frequently asked questions
- When and how can I sign up?
- Why is the sign up deadline July 20?
- What if I can't fulfill the terms of the contract?
- Why did the CWB make change the DPC program for 2007-08?
- How is the CWB determining the DPC?
- Why isn't the CWB showing us how the DPC price is calculated? What U.S. elevators will you be using?
- Is it possible for the spot price at a U.S. elevator located a few miles from my farm to be higher than the DPC value on any given day?
- Do I have to deliver this contract to a U.S. elevator?
- Since the CWB will only be posting a reference (base) grade DPC price, how will I know what my wheat is worth if I deliver a grade other than the reference grade?
- How do I lock in the cash spreads for my deliveries?
- Why are the DPC cash spreads different than the initial payment spreads?
- Can I apply deliveries to my contract before I price it?
- How can I lock in the DPC cash spread if my grain has not been called for delivery yet?
- What is the discount for applying feed grades to my contract?
- I have multiple contracts (DPC, FPC and EPO), does it make a difference which contract I deliver against first?
- I applied deliveries against my DPC, but haven't priced it yet. Will I receive CWB adjustment payments on these deliveries until my contract is priced?
- What happens if I don't price my DPC contract by July 31, 2008?
- Why do I have to price my entire contract by July 31, 2008? If the market prices are too low, can't I just cancel the tonnes remaining on my contract?
- Can I lock in the basis only and price the futures later under the DPC program?
- I plan to use the DPC with a Producer Direct Sale (PDS). Do I have to complete the two transactions at the same time?
- Why is the PDS value higher than the DPC ? I thought they were both priced off the U.S. market?
- Can old crop deliveries be applied to new crop DPC?
When and how can I sign up?
For the 2007-08 crop year, producers will have to commit to the contracts prior to the start of the crop year, as they did with the preliminary versions of the FPC and BPC contracts. DPC sign up will begin June 18, 2007 and will run to July 20, 2007. There will be a per-farm contract limit of 5 000 tonnes and a program limit of 650 000 tonnes. Sign-up will be on a first come, first served basis. Once the program limit is reached, sign-up will be terminated without prior notice. For the2007-08 crop year first DPC pricing schedule will be posted August 1, 2007. The last day to price your contract will be July 31, 2008. It is important to note that daily prices will be subject to more volatility than FPC and BPC values.
Why is the sign up deadline July 20?
There are a number of reasons for this sign-up deadline. The CWB's Risk Management department has to know in advance of the start of the pool, how many tonnes need to be hedged to protect the pool accounts and prevent a shortfall. The DPC is priced independently of the pool account. Therefore there will be times when the DPC price is at a premium of the pool and other times when it will be at a discount. Without a signup deadline prior to the start of the pool producers could choose the better of the two prices and dilute the end value of the pool or remove grain from the pools, which could impact sales opportunities.
What if I can't fulfill the terms of the contract?
Producers can opt out of these contracts up to the July 31 for a $15 administration fee. After the start of the crop year, the producer will be subject to pricing damages similar to the FPC/BPC contracts. Pricing damages will be the greater of the basis risk change or futures losses, plus the $15 administration fee.
(Current fixed price contract – DPC)
or
(Current futures value – futures value on date of DPC lock in)
Why did the CWB make change the DPC program for 2007-08?
A higher-than-expected basis risk since the program was first launched made the increased adjustment for risk necessary.
The price risk associated with higher futures movement on any give day can be offset by the CWB hedging program. The CWB sells futures when the farmer locks in the DPC reference grade value and buys futures against the tonnage in the program according to the CWB sales pace. However, in the case of the DPC, there is considerably more unhedgeable basis risk compared to other PPOs. One additional source of this risk is the use of a single market – the U.S. northern tier of country elevators – to determine DPC pricing when sales are made against a number of other market price structures with varying basis levels.
Minneapolis wheat index futures were meant to be used as the original means of hedging basis risk under the DPC program. However, they only trade sporadically and so have not proven to be an effective risk management tool. Without a reliable method to manage basis risk, the risk adjustment currently incorporated into the daily price does not accurately offset program risk. The CWB is increasing the adjustment for risk to deal with a higher than expected basis risk.
How is the CWB determining the DPC?
The DPC will be an average of a basket of North Dakota and Montana elevator prices. A reference grade DPC price will be posted for each of the seven classes of wheat, and quoted as an in store Vancouver or St. Lawrence value. Producers will have to deduct rail freight and handling to arrive at a farm gate price.
Why isn't the CWB showing us how the DPC price is calculated? What U.S. elevators will you be using?
The CWB will not name the specific delivery locations from which it will derive prices, because the DPC is a blended value reflecting a number of U.S. delivery points. At times local conditions, such as elevator space or transportation problems, can unduly influence local elevator prices. These anomalies cannot remain in the equation if the goal is a true daily price.
Is it possible for the spot price at a U.S. elevator located a few miles from my farm to be higher than the DPC value on any given day?
The DPC reflects an averaged U.S. elevator price, and from time to time may be less than a specific local U.S. elevator price. If a producer wishes to capture such a premium, they can price their DPC contract in conjunction with the CWB Producer Direct Sales program effectively locking in a spread to access the U.S. market.
Do I have to deliver this contract to a U.S. elevator?
No. This contract was developed to provide all producers with a U.S. equivalent price for deliveries applied against their CWB delivery contracts.
Since the CWB will only be posting a reference (base) grade DPC price, how will I know what my wheat is worth if I deliver a grade other than the reference grade?
A set of cash spreads specific to the DPC program is posted daily for all grades and protein levels for wheat.
How do I lock in the cash spreads for my deliveries?
Cash spreads in effect on the date of initial payment settlement will be automatically applied against your contract.
Why are the DPC cash spreads different than the initial payment spreads?
DPC cash spreads reflect the daily cash market spreads
between varying grades and protein content of wheat and can change in value
every day. The initial payment spreads are set at the beginning of the crop
year based on a long-term price outlook. As the crop year progresses, these
spreads are reset as adjustments to the initial payments occur.
Can I apply deliveries to my contract before I price it?
Yes. The elevator will issue the initial payment based
on the settlement grade and apply the deliveries against the contract. The
CWB will issue the DPC additional payment after you price the reference grade
portion of the DPC.
How can I lock in the DPC cash spread if my grain has not been called for delivery yet?
Deliveries opportunities are based on Series A, B, C contract calls. You will have the ability to lock in the cash spreads for the amount of tonnes that are currently called for delivery. Cash spreads are locked in on the date of settlement for the initial payment reflecting the cash spread for that date.
What is the discount for applying feed grades to my contract?
There will be no additional discount applied to your contract
for feed grade deliveries. The DPC cash spread for feed grades in effect at
the time of initial payment settlement will be applied against your contract
determining your final contract price.
I have multiple contracts (DPC, FPC and EPO), does it make a difference which contract I deliver against first?
It's your choice. When settling your deliveries at the grain elevator, ensure the staff apply the correct contract numbers to your cash purchase tickets.
I applied deliveries against my DPC, but haven't priced it yet. Will I receive CWB adjustment payments on these deliveries until my contract is priced?
No. If your deliveries are applied to a DPC you will receive the initial payment at the elevator and no further adjustment, interim or final payments from the CWB pool account. Instead, you will receive a DPC payment from the CWB after you price the reference grade portion of your contract. This payment represents the difference between your contracted price and the initial payment already received from the elevator:
DPC additional payment = DPC reference grade price +/-cash spread of settlement
grade – initial payment of settlement grade
What happens if I don't price my DPC contract by July 31, 2008?
Any tonnage remaining to be priced will be automatically locked in on July 31, 2008. Producers who cannot fill their contracts, or wanting to reduce their commitments, can assign their contracts to another producer prior to this date. They also have the option to buy out their DPC. The buyout cost is the greater of:
(Current fixed price contract – DPC)
or
(Current futures value – futures value on date of DPC lock in)
Why do I have to price my entire contract by July 31, 2008? If the market prices are too low, can't I just cancel the tonnes remaining on my contract?
If the condition to price your contract by July 31, 2008
was not required, the DPC could be used to arbitrage the pool account. That
is, producers would have the option to deliver against the DPC whenever the
price exceeds the pool. Alternatively, if the pool account is priced higher
than the DPC towards the end of the crop year, producers could deliver into
the pool and cancel their DPC commitments at no cost.
Can I lock in the basis only and price the futures later under the DPC program?
No. The DPC is offered as a flat price contract only, there is no separate basis and futures contract. You can still sign a basis contract under the CWB basis payment contract (BPC) program.
I plan to use the DPC with a Producer Direct Sale (PDS). Do I have to complete the two transactions at the same time?
No, you can price the DPC before or after you complete a PDS. By locking in the values on different days you leave yourself exposed to the PDS/DPC spread widening and increasing your cost to access the U.S. market. On the other hand the spread may also narrow in your favour.
Why is the PDS value higher than the DPC ? I thought they were both priced off the U.S. market?
The DPC is a U.S. elevator equivalent 'buying price'. The PDS is the CWB asking or 'selling price'.
The PDS reflects the CWB's asking price for sales into
the U.S. market to end use customers. The PDS is based off daily U.S. market
prices and is comprised of the daily relevant U.S. wheat futures price plus
the CWB sales basis.
The DPC is also based off the same daily U.S. wheat futures and a basis prices.
The basis offered to producers will be similar to the basis levels available
to U.S. producers delivered into local elevator locations.
Since the PDS and DPC are both determined using the same daily futures values, if there is a difference in price, it will be a result of differing basis levels between the PDS and DPC. The spread between these basis levels will be the producer's cost to access the U.S. market.
Can old crop deliveries be applied to new crop DPC?
The policy to allow farmers to place 2006-07 deliveries into storage for settlement against 2007-08 DPC and EPO contracts remains in place. Farmers can deliver against 2006-07 delivery commitments and price these deliveries against their 2007-08 DPC after August 1, 2007.