The CWB has the stated objective of increasing producer returns through maximizing sales revenue and minimizing operating costs. To maximize producer returns the CWB derives value from single-desk selling, price pooling and the initial price guarantee.<p>
The initial price allows the CWB to offer a price floor to producers which is guaranteed by the Federal government. This guarantee has come under review in recent World Trade Organization (WTO) negotiations with opponents stating that the Federal government is unfairly subsidizing producers. Therefore developing methods to hedge the initial payment and remove the CWB dependency on the Federal government guarantee has taken on considerable importance.<p>
Hedging the initial price has two components, the first is commodity risk, and the second is currency risk. Commodity risk basically consists of the risk that wheat prices decrease significantly from the announcement of the initial payment resulting in a wheat pool account deficit. Currency risk relates to the risk of the Canadian dollar (CAD) increasing vis-à-vis the United States dollar (USD) resulting in lower wheat prices. This is due to the fact most sales are made in USD, necessitating the conversion of USD for CAD in order to pay Canadian producers. Given recent increases in exchange rate volatility this later risk is important. <p>
The goal of this study is to evaluate the currency risk present in the initial payment and to examine alternate means of mitigating this risk. A number of call option strategies will be evaluated to determine its ability to reduce the probability of a wheat pool account deficit by offsetting the effect of a rising CAD.<p>
The policy variables analyzed in the thesis are the initial payment as a percentage of the Pool Return Outlook for wheat and the strike price of the call options purchased. Therefore the study will examine the effect of inputting varying initial payment levels and different strike prices for the call options in the model. This will allow for quantifiable insight into cost versus risk reduction comparisons. These comparisons will be useful in determining the most efficient mode of action for the CWB.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:SSU.etd-12232008-141522 |
| Date | 12 January 2009 |
| Creators | Acton, Douglas Richard |
| Contributors | Kurbis, Gord, Gray, Richard S., Brown, William J., Rosaasen, Kenneth |
| Publisher | University of Saskatchewan |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://library.usask.ca/theses/available/etd-12232008-141522/ |
| Rights | unrestricted, I hereby certify that, if appropriate, I have obtained and attached hereto a written permission statement from the owner(s) of each third party copyrighted matter to be included in my thesis, dissertation, or project report, allowing distribution as specified below. I certify that the version I submitted is the same as that approved by my advisory committee. I hereby grant to University of Saskatchewan or its agents the non-exclusive license to archive and make accessible, under the conditions specified below, my thesis, dissertation, or project report in whole or in part in all forms of media, now or hereafter known. I retain all other ownership rights to the copyright of the thesis, dissertation or project report. I also retain the right to use in future works (such as articles or books) all or part of this thesis, dissertation, or project report. |
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