Compatibility of government guarantees with flexibility in Canadian wheat price pooling

Financial option theory is used to evaluate Canadian Wheat Board (CWB) pric e pooling and associated government guarantees. Price guarantees and final payments on the pool can be viewed as special financial derivative products . Financial models are used to evaluate alternative pricing flexibility alt ernatives es within the constraints of the CWB price pooling system and at the same time to provide a measure of the CWB dollars at risk associated wi th offering these contracts. Flexible pricing alternatives are incompatible with a government price guarantee that is valuable. The CWB dollar risk as sociated with flexible pricing could be substantial.