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Farmers

PPO primer

If you're new to the PPOs, be aware that you need to take a few steps before you can sign up.
  • If you have a joint permit book, trade name or a partnership, you must complete a Continuing Personal Guarantee.
  • Know your producer ID-number and make sure it's entered correctly.
  • Confirm your committed grain and tonnage.
  • Double-check your selected PPO program.
  • If you end up faxing the same form twice, write "Duplicate" on the form or immediately contact the CWB.
  • You must have a signed delivery contract in place when delivering grain under a PPO contract.
Contact your PPO program service representative if you have questions.

The CWB is working to provide farmers a full toolkit of choices in pricing their grain. Producer Payment Options (PPOs) enable you to make your own pricing and risk-management decisions within the existing marketing structure for western Canadian wheat, durum and barley. These programs offer choice, flexibility and cash flow. You can customize your mix of pricing options and/or pooling to meet the needs of your farm.

How the adjustment factor works

An adjustment factor is used within PPO program pricing to ensure farmers making later sign-up commitments share in previous pricing activities. As the sign-up period progresses and depending on market conditions, the AF calculation can either be a positive or a negative value.

The risk of running the PPO program is managed through a separate risk management and hedging strategy. The CWB hedges the price risk from the time of farmer pricing to the completion of CWB sales at the end of the pool period. However, PPOs do not operate in isolation from CWB pricing of actual grain sales. The CWB markets farmers' wheat together, regardless of whether it is producer-priced through a PPO or average-priced through the pools. The impact of previously priced wheat is reflected in the adjustment factor.

Adjustment factor

The CWB takes the following into consideration when calculating the adjustment factor:

  • per cent of wheat priced by the CWB at that time;
  • the average price achieved on that wheat and
  • current market values

As the sign-up period progresses, the per cent of wheat priced and the average price achieved represent a larger portion of the pricing calculation, since increasingly more grain has been priced. The adjustment factor will be negative if the past sales are below the current market and positive if past sales are above the current market. The AF is locked-in when tonnes are committed to a PPO contract.

Understanding the numbers

This graph highlights how the adjustment factor works in relationship to the Fixed Priced Contract value and the current market value. For example, in mid-November 2009, the FPC value was below current prices resulting in a negative adjustment factor. In January 2010, FPC pricing activities were higher than current values and any farmer signing-up a FPC contract would have received a positive adjustment factor.

FPC, current market and adjustment factor

The calculations

FPC
= (percentage of wheat priced x average price) + (percentage of wheat unpriced x current market value)

BPC
= futures + basis + adjustment factor

FlexPro
= current market value + adjustment factor (after July 31)

Adjustment factor
= (average price – current market value) x percentage of wheat priced

Examples:

Adjustment factor in a rising market

Average price $240
Current market value $270
Percentage of wheat priced 25%

($240 - $270) x 25% = - $7.50 adjustment factor per tonne

Adjustment factor in a falling market

Average price $240
Current market value $210
Percentage of wheat priced 25%

($240 - $210) x 25% = $7.50 adjustment factor per tonne

For information about PPOs, contact one of the CWB's program service representatives. Full contact information is online at www.cwb.ca/psr.