Does grain pooling make sense in an open market?

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By Gord Flaten

CWB pooling is a simple and effective risk-management tool for farmers. You've heard us say that before. But what exactly does it mean?

Simplicity can appeal to both expert marketers and those who prefer to spend their time on other priorities. CWB experts take care of marketing, averaging futures and basis, foreign exchange and risk management. At the end of the process, you end up with a good return that captures all the price activity during the pool period, assured that you did not sell when prices were below the market average.

However, the most important aspect of the CWB pool benefit is effectiveness. You're putting your grain into the hands of people who know what they're doing. We know how to market your grain. CWB has retained our sales team, who have long-established connections with end-user customers around the world. They understand how international grain markets work and they have relationships with customers who trust them.

CWB does not claim to be able to pick all the highs of the market or time sales perfectly. Nobody can.  But each and every day we will get good value for your grain. That's why we refer to price pooling as a way to get a good average return over the course of the year. On any given day, we have a good chance of doing better than most traders who do not have decades of experience marketing your grain around the world. That extra money goes into the pool, and it all adds up.

There are several different things that make up the price you actually receive. Part of the price is based on the futures value, which is a standard contract with basic quality characteristics, delivered to a location like Chicago. Between those prices and what you actually receive on farm is the basis.

The basis is made up of a number of different things. For example, what quality do you have relative to the futures contract specifications? When you're delivering and pricing that grain, is the buyer short or long? Are they desperate to buy to fill a vessel that week or not? What are the handling and transportation costs for getting your grain to the port?  Are protein premiums wide or narrow right now?  The list goes on.

At CWB, we're watching all of those elements every day. We're not simply trying to get a good price relative to the futures values, we're also watching the basis. Are there good values for your particular protein content today? Do we have a customer or another grain company that is anxious to buy today?

Contracts that do not pool futures and basis are not the same as CWB pooling and they're not as effective at managing your pricing risk.

Another important part of pooling is this: you get to keep all the profits, including those that are generated after you sign you contract and deliver. We don't keep them, we return them to you. We sell at a disciplined pace during the year, so you won't miss out on a price rally. Of course, you are also affected if the price drops after you deliver. But you end up with a good average, and you don't have to worry that you've sold on a day when prices end up being low compared to the rest of the year.

CWB's Harvest Pool is open to farmer sign-up only until October 31. After that, your remaining options are cash contracts - either from CWB or another grain company. There are no longer any subsequent "Series" pool contracts throughout the winter. Now is the time to make your grain-marketing decisions. I wish you all the best as we forge ahead together in the new grain-marketing era.

Gord Flaten is the CWB vice-president, grain procurement

Organizations: Canadian Wheat Board

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