Farmers
Frequently asked questions
- I delivered my grain more than 10 days ago. Why hasn’t the Canadian Wheat Board (CWB) issued my additional payment?
- How should a delivery be settled against a PPO to prevent a delay in payment?
- I have several PPO contracts and I have delivered enough grain to fill them. So why has some of my grain ended up in the pool while I still have outstanding tonnes on my PPOs?
- I don’t have enough grain to fill my PPO contract. What are my options?
- Who is eligible for payment under a PPO contract?
- I have a PPO contract under my own permit book (00-12345678) and I am also an interested party under another book (03-12345678). Am I eligible for payment under the PPO if I deliver under my interested party ID?
- Why was my force majeure claim rejected even though I had a significant production-limiting event?
- How are buy-out values calculated?
- Why doesn’t the CWB pay out futures or basis gains on a buy-out if my contract price is more favourable then current market conditions?
- Why does the CWB charge for a buy-out on a BPC when only the basis has been locked in?
- Where can I find pricing information?
- ow do I calculate the farmgate value of my contract?
- Why do producers have to sign a delivery contract for grain contracted on a PPO?
- Why are pricing damages charged if I have delivered 90 per cent of the contracted tonnage against a PPO contract?
- I signed up an 80 per cent EPO; when do I get the remaining 20 per cent?
- How is the basis determined?
- If futures rally, will the basis also rise?
- Why is the CWB basis different than a non-Board basis?
- Why does my basis change when I roll to a different month?
- What is the adjustment factor?
- How are fixed prices established?
- Why can’t I sign up an FPC year-round?
- Why do I have to lock in my basis by October 31?
- What is the Daily Price Contract?
- Can I place a Target Order for my DPC?
- Why is the spot price at a US elevator located a few miles from my farm much better than the CWB’s current DPC value?
- Do I have to deliver against a DPC at a U.S. elevator?
- Why are DPC spreads different from the other PPO programs and how do they work?
- I plan to use the DPC with a Producer Direct Sale (PDS). Do I have to complete both transactions at the same time?
- Can I apply deliveries against my DPC or BPC even if they aren’t priced?
- If I apply deliveries against my unpriced DPC or BPC, will I receive CWB adjustment payments on these deliveries until my contract is priced?
I delivered my grain more than 10 days ago. Why hasn’t the Canadian Wheat Board (CWB) issued my additional payment?
The CWB issues the additional payment within 10 business days of receiving a cash purchase ticket that has been correctly settled against a Producer Payment Option (PPO) contract. There are a few reasons that payment may be delayed but the main ones are: the cash purchase ticket was not properly applied to the contract; transmission of the cash ticket to the CWB was delayed; the holder of a selected barley PPO does not have a Selected Barley Storage and Delivery Contract (SBSDC).
In some cases, there may be no additional payment owing. If the reference grade initial payment has been raised above the contract value prior to settlement, the contract no longer has any additional value.
How should a delivery be settled against a PPO to prevent a delay in payment?
For wheat, durum and feed barley, the contract number must appear on the cash purchase ticket.
For selected barley, the producer’s SBSDC number must appear on the cash purchase ticket. The CWB automatically matches tickets to PPOs using the SBSDC number. An additional payment won’t be issued unless there is a corresponding SBSDC.
I have several PPO contracts and I have delivered enough grain to fill them. So why has some of my grain ended up in the pool while I still have outstanding tonnes on my PPOs?
If the tonnage on a single cash purchase ticket applied against a PPO is greater than the balance of the contracted tonnage, the overage automatically goes to the pool. As a result you could wind up being short deliveries on your other PPO commitments.
To avoid this situation, ask the elevator staff to split your tickets to exactly match the tonnage committed to your PPO contracts if you have multiple pricing commitments. The CWB is unable to split tickets once they are reported by the grain company.
I don’t have enough grain to fill my PPO contract. What are my options?
You potentially have three options:
- Assign all or part of the contract to another producer for a $15 administration fee.
- Buy out all or part of the contract. The cost of the buyout depends on your contract price relative to current market conditions and is subject to a $15 administration fee.
- If you signed up for the force majeure clause, it may be invoked if the shortage is the result of a production-limiting event.
Who is eligible for payment under a PPO contract?
For wheat, durum and feed barley, the PPO contract holder and interested parties under the contract holder’s permit book are eligible for payment. For selected barley, only the contract holder is eligible. Interested parties must have their own contract.
I have a PPO contract under my own permit book (00-12345678) and I am also an interested party under another book (03-12345678). Am I eligible for payment under the PPO if I deliver under my interested party ID?
No. For wheat durum and feed barley, the PPO contract holder and interested parties under the contract holder’s permit book are eligible for payment. For selected barley, only the contract holder is eligible. Interested parties must have their own contract.
Why was my force majeure claim rejected even though I had a significant production-limiting event?
The terms and conditions of the force majeure clause require that contracts with the force majeure option be delivered against in priority to all other contracts, including pool deliveries. If you produced enough grain to fill your PPO with the force majeure option, you cannot invoke the clause even though you suffered yield loss.
How are buy-out values calculated?
Buy-out calculations vary by program. All buy-outs are subject to a $15 administration fee.
For Early payment Options (EPO):
EPO discount – time value of money
For Basis Payment Contracts (BPC):
The greater of:
(current futures + current basis + current adjustment factor) – (producer’s futures + producer’s basis + producer’s adjustment factor) or (current futures – producer’s futures)
Only certain components of the formula apply depending on the producer’s pricing commitments. For example, if a producer has a BPC without the futures locked in, the futures component of the calculation would not be considered.
For Fixed Price Contracts (FPC):
The greater of:
(current FPC – producer’s FPC) or (current futures – producer’s futures)
For Daily Price Contracts (DPC):
The greater of: current FPC – producer’s DPC or current futures – producer’s futures
Note: If the producer’s contracted futures month has expired, contract values must be adjusted to the current nearby futures month for the buyout calculation.
Why doesn’t the CWB pay out futures or basis gains on a buy-out if my contract price is more favourable then current market conditions?
The CWB offers PPOs as a pricing alternative to the pool, not an opportunity to speculate on the markets. The CWB holds the risk if prices change and hedges risk on the futures market. Producers who want to speculate in the futures market should contact a brokerage firm.
Why does the CWB charge for a buy-out on a BPC when only the basis has been locked in?
The CWB assumes basis risk by offering the BPC program. Also, the CWB buys long positions to hedge sales based on the total amount of tonnage committed to the program. Buy-outs are charged to recover market losses, both futures and basis.
Where can I find pricing information?
Click on the Producer Payment Options link on the CWB website home page under ‘Top 5 Pages’ on the right hand side. Daily pricing schedules can be found by clicking on the link for the relevant program on the left hand side of the Producer Payment Options page.
How do I calculate the farmgate value of my contract?
All PPO prices are quoted in-store Vancouver or St. Lawrence. Freight and handling from your location to Vancouver or St. Lawrence must be deducted to arrive at the farm-gate value.
Why do producers have to sign a delivery contract for grain contracted on a PPO?
PPOs are pricing contracts only and do not have any delivery terms associated with them. A delivery contract is required so that both PPO and pool participants have equal opportunity to deliver.
Why are pricing damages charged if I have delivered 90 per cent of the contracted tonnage against a PPO contract?
PPO contracts are pricing, not delivery, contracts. Producers must deliver 100 per cent of the tonnage committed to PPO contracts, just as you would with any contract based on the commodity futures market. Delivery contracts require only 90 per cent delivery to allow producers some margin of error in estimating stored grain. This tolerance is built into the CWB sales plan when evaluating supplies.
I signed up an 80 per cent EPO; when do I get the remaining 20 per cent?
The EPO program offers an 80, 90 or 100 per cent early payment value of the current Pool Return Outlook (PRO), less a discount. The PRO is the CWB’s forecast of total returns to producers for the crop year, not a guarantee. The maximum payable under an EPO is not the PRO value when the contract was signed but actual total returns, less the discount. You will receive adjustment and final payments in the usual way if the initial payment is raised above your early payment value.
How is the basis determined?
The basis is calculated by deducting the CWB’s forecasted futures, plus a discount for risk, time value of money and administration costs from the reference grade CWB PRO. It is the CWB’s projection of the average basis on pooled sales for the full crop year. The basis is recalculated each time the PRO is released.
If futures rally, will the basis also rise?
Not necessarily. Other factors such as quality and the Canadian dollar could cause the basis to drop even though tight supply and demand fundamentals cause futures to rally. This situation occurred in the fall of 2006.
Why is the CWB basis different than a non-Board basis?
Because the CWB basis is a pooled basis for an entire year, it is calculated differently than a basis for non-Board grain. A non-Board basis is a spot or cash value directly associated with a particular delivery point and specific futures contract month, adjusted for quality, various elevator handling charges and margin. Also, basis levels on non-Board grains may be adjusted up or down daily to attract or discourage deliveries, depending on the sales program, resulting in greater volatility.
By contrast, the CWB basis is relatively stable because it is calculated using a flat price structure that doesn’t include a competitive factor to attract or discourage grain deliveries. The December basis levels are recalculated monthly with the release of the PRO and will remain stable until the next PRO release. March, May and July basis levels will change daily reflecting the difference in daily trading of futures and foreign exchange. The CWB basis is quoted in-store St. Lawrence or Vancouver so freight must be deducted to determine the country basis at the producer’s delivery location.
Why does my basis change when I roll to a different month?
The CWB establishes the basis so that the futures plus the basis is the same for all contract months. When a basis is rolled, it is adjusted by the spread between the existing month and the new month to arrive at the same flat price.
What is the adjustment factor?
The adjustment factor is the cost of committing tonnage to FPC/BPC programs after Aug. 1, when sales have already been made. The adjustment factor offsets the gain/loss on long positions in the FPC/BPC hedging program by passing it back to program participants.
How are fixed prices established?
Fixed prices are a flat price comprised of the futures value, the basis and the adjustment factor on a given day.
Why can’t I sign up an FPC year-round?
The CWB set a deadline of October 31 for two reasons:
- Volatility of the adjustment factor increases sharply after the first quarter of the crop year as more sales are made, which significantly impacts prices.
- FPC values converge with the PRO as the crop year progresses. This is because the components that make up the basis (PRO and forecasted futures) become more of a known quantity. Also, as the sales program approaches 100 per cent, the adjustment factor brings the futures component in line with the existing long positions associated with the PPO hedging strategy.
Why do I have to lock in my basis by October 31?
Basis risk cannot be hedged in futures market. The CWB assumes substantial risk on these programs by offering a forecasted basis value. To ensure the CWB can manage its risk, the CWB has set a deadline of October 31 for pricing basis.
What is the Daily Price Contract?
The DPC offers a daily price for wheat derived from an average of a basket of U.S. northern tier state elevator prices. A reference grade DPC price will be posted daily. The contract is priced using two separate components: 1) the reference grade value for the class of wheat; 2) daily cash spreads.
The reference grade value can be locked in on any day between August 1 and July 31 even if the grain has not been delivered.
The cash spreads are locked in on the settlement date of the cash ticket for the actual grade delivered.
Can I place a Target Order for my DPC?
No, the CWB does not currently offer the target pricing service for the DPC but is looking at doing so in the future.
Why is the spot price at a US elevator located a few miles from my farm much better than the CWB’s current DPC value?
The DPC reflects an average U.S. elevator price and may sometimes be significantly greater or less than a specific local U.S. elevator bid. If a U.S. elevator is caught short on supply, for instance, it will improve its wheat basis to attract immediate deliveries. If you want to capture such a premium, you can price your DPC contract in conjunction with the CWB Producer Direct Sales program, effectively locking in a spread to access the U.S. market. The opposite situation can occur if an elevator has a glut of supply.
Do I have to deliver against a DPC at a U.S. elevator?
No. The DPC was designed to offer a U.S. equivalent price but deliveries are made at your local elevator.
Why are DPC spreads different from the other PPO programs and how do they work?
The DPC is based on spot U.S. cash market values, which change daily. The other PPO programs use initial payment spreads, which are based on the PRO spreads at the time they become effective. All spreads between th e delivery grade and the reference grade for pricing PPO contracts are based on the settlement date. The difference between the U.S. cash spreads and the initial payment spreads are adjusted on the CWB additional payment to reflect the correct DPC value.
I plan to use the DPC with a Producer Direct Sale (PDS). Do I have to complete both transactions at the same time?
No. However, 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 could also narrow in your favour.
Can I apply deliveries against my DPC or BPC even if they aren’t priced?
Yes. The elevator will issue the initial payment for the grade delivered and apply the deliveries against the contract. The CWB will issue the additional payment after you have completed locking in the contract price.
If I apply deliveries against my unpriced DPC or BPC, will I receive CWB adjustment payments on these deliveries until my contract is priced?
No. The additional payment will be issued from the CWB when the contract is priced.