What to know about our No. 2 Harvest Pools

This season, with the elevated interested in pools, we have had queries from growers seeking to refresh themselves with the workings of a pool, and more recently around the distinction between a No. 1 Pool and No. 2 pool.

In any given season, the No. 1 Pool is the first pool offering made for a given commodity.

Once CBH has confirmed the details of how pool will be operated, including things like the pool mandate, valuation estimates and forecast tonnage volumes, the pool can functionally start to execute its mandate by participating on sales and hedging exposures at the discretion of the pools management team.

Therefore it is typical for the No. 1 pool to have a number of sale commitments and associated hedging in place very early in the season, reflecting its expected marketing program for that season.

The CBH pool manager has an obligation to operate in the best interest of pool participants at all times. This may result in a decision to close the No. 1 Pool if there is a perceived risk of additional tonnage commitments materially diluting the forecast equity for existing participants of the No. 1 Pool.

This decision could be made for a variety of reasons, however is generally linked to the tonnage volume in the pool and the underlying market conditions, taking into account some perceived view of the future.

If there is ongoing interest in growers utilising pools despite the closure of the No. 1 Pool, then CBH will typically offer a No. 2 Pool for growers as an avenue to market their grain.

So what is the difference between how a No. 1 pool and No. 2 pool operate?

By and large, a No. 1 and No. 2 Pool will operate in a similar fashion in terms of pool management decisions being made over the lifecycle of the products.
The key difference comes from the mandates of a No. 2 Pool, which are altered to reflect the fact that the No. 2 Pool begins selling its grain later, and accordingly tends to run over a longer timeframe compared to a No. 1 Pool.

As a result, the pool faces higher uncertainty as to the market conditions prevailing at the time it is operating, which is why No. 2 Pools always have a lower initial equity and lower advance rates than No. 1 Pools.

It’s important to note that this is not a forecast of the expected future outcome of the No. 2 Pool, it is simply a reflection of the increased risk attached to the No. 2 Pool. The final pool result, much like the No. 1 Pool, will be largely influenced by market conditions prevailing over the pool marketing window and the management decisions made with respect to how the pool is marketed and hedged.

This could ultimately prove to be beneficial to the No. 2 Pool if market conditions are supportive while it is marketing its grain.

Additionally, the No. 2 Pools will have slower distribution profiles, and will finalise later, reflecting the longer timeframe the product is marketed over.

Hopefully this provides some clarity on the main distinction between No. 1 and No. 2 pools, and if you have any further questions or are keen to utilise a CBH pool this season you can nominate via LoadNet or contact your local Business Relationship Manager or the Grower Service Centre for assistance