Our fragile free markets are snowflakes that need a safe space

Never has it been so obvious how terribly fragile and prone to melting our free and open markets are today.

Winnipeg’s futures markets for barley, durum and spring wheat have been disbanded, after being abandoned by market players over the past few years. The remnants were swept out and mopped up last week, with the Intercontinental Exchange’s Canadian office informing the market that the three grain contracts were being immediately delisted.

That’s that for ICE’s attempts to create post-Canadian Wheat Board hedging and price discovery through futures. This is the end to the hope of many farmers and grain industry players that an open public market for Western Canadian cereal grains be engendered through a vibrant derivatives market. It’s a sad ending for one contract, barley, that had been trading for over a century. It’s a capitulation of the exchange’s hopes that it could fill one of the voids left by the CWB.

More than anything the delisting of the contracts is evidence of how challenging it is to create a free public market, or keep an existing one alive. There are lots of reasons these particular contracts died, and some of them are good reasons. It’s not necessarily a tragedy that these markets are gone because farmers, the market and industry have all migrated and seeped into other forms of price discovery, marketing and hedging. Futures is far from the only way to discover prices or hedge risk, and the thousands of people who make up the market have decided they’d rather use other methods.

But there’s no question that futures are probably our best and most trustworthy form of discovering what the actual underlying price for a commodity is on any given day, and that not having futures for various crops means prices drift into a murky zone of poor information, rumours and claims.

ICE failed here, but it worked hard to try to succeed. I was around all sorts of meetings in the first couple of winters after the CWB’s monopoly was broken, and I saw ICE staff talking to anybody who would listen about what they were planning and what they were doing. They threw a lot of effort into these contracts.

It can’t be nice for them to have to announce that these ones are dead. They’ve had to do that with oats, flax and peas in the past and this shows that the challenge to futures markets remains as intense as ever, with success far more rare than failure. Futures exchanges around the world have been struggling to survive, as a wave of consolidation and new forms of digital trading sweep through the world’s commodity markets like a November gale.

Our culture is filled with invective and accusations about “snowflakes” and “fragility,” from righties and lefties criticizing each other, but maybe the one place that truly needs a “safe space” is our small collection of free and open futures markets, because it’s a pretty harsh environment out there, and it’s harder to just survive than shatter or melt.

Comments

  • ed

    You know guys, there is no such thing as a free market if all the players do not have equal power. What we have now is an extremely fraudulent market. Of coarse most people knew that would happen, but a few did not. We always had that fraudulent market in things like canola, flax, specialty crops to a degree, pulses etc., but we did have a rather great marketing strength in recent times with wheat and malt barley. Not so long ago oats was on the list of orderly marketed commodities as well. Yes, the Canadian Wheat Board brought billions of additional dollars to prairie farmers for their wheat and malt barley annually and because of it’s existence held other commodities to account. The fight to keep the majority of acres on the praries away from Western Canadian Red Spring Wheat was ongoing and moved the price structure of all commodities upwards. A high tide elevates all boats as they say. The additional billions that was adding to Western Canadian farmers bottom lines was emence beyond the wheat and barley numbers. Now we have prices that are half what they were adjusted for inflation just a few short years ago. That is more than fragile, it is stupid. Carguill and the like have got in on more tax payer funded young farmer rebates, tax payer funded crop insurance proceeds, tax payer funded Agri Invest/AgeiStability/AgriRecovery and AgriStupidity dollars that we will soon have to decide whether farmers should produce their crops for these parasitic companies and just dump them in the pit for free. They could then freely negotiate a price with the tax paying general public, basically the government for some kind of numeration to adequately compensate them for their labor and trouble. Whether that would still feel like you are a farmer or not is unknown at this point, but feeling like a slave/basket case burden on society may be replaced with the feeling of being more like a essential service, like a fire fighter or police officer or such. If it is going that way anyway, it might be worth considering before it is too late and we have no one left to dangle that carrot in front of.

    • Kissing optional

      Free? Markets.
      From the Cargill fined $10 Mil article

      ‘Cargill, one of the largest agriculture commodities traders in the world, provided inaccurate marks that concealed as much as 90 percent of its mark-up.
      Some of the swaps were based on prices derived from Cargill’s ProPricing grain program that helps farmers hedge against volatility, according to the statement.’

      How’s that hedging going for ya?

      • Harold

        Hedging is when you are insuring yourself from a negative event. It doesn’t prevent a negative event and hedging is the same thing as you obtaining home insurance or auto insurance to cover a negative event; you are hedging. People do this all the time and we see it every day and although the instruments in business have different titles and seem complex to you, they are not any different. Investors hedge one investment by making another; technically they are investing in two securities with negative correlations. In your terms, that means that if one home burns to the ground at least they have the second home and are not homeless – and have not lost everything. Both homes (investments) are capable of burning to the ground; (negative correlations) one did not. When you lie and make a false claim on your auto/home insurance, you end up in court. Your question: “how’s that hedging going for ya” and directed to Ed – is absolutely non-sensible. This leads me to believe that although you can read a report, you don’t fully understand it, and you really don’t know what you are talking about. Perhaps you should reframe your question or abandon it all together. Based upon your comment, your question in simple terms is the same as asking Ed how my auto insurance contract (hedge) is going for him – if I make a false claim to my insurance company and I get fined. In this case – how do you suppose that it is going for ED? Do you need an answer or were you merely trying to tell Ed that people who commit fraud sometimes get caught?

        • Kissing optional

          The point I was attempting to make to ED was that the collapse of the Winnipeg market board created a more consolidated market for Cargiull type agencies and less options for producers.
          The fewer options for producers, the less opportunity for them to ‘hedge’.
          Sorry if my snark got by you.
          I am well aware of Ed’s position on the Ritz/Harper destruction of CWB with its best price for producers policy vs the take what You’re offered after our profit policy offered up by the grain buyers in place now.
          It was not my claim that producers would be able to hedge with end of CWB.

  • don

    Please explain how this would affect our spring wheat price or volatility. Spring wheat is traded off the Minneapolis price which is still very active with prices as high as 950 Canadian this summer. Not seeing how we will miss something that wasn’t used. Futures prices are still available

  • Bruce

    Yes, you are correct ed. Western Canadian grain farmers got billions upon billions of dollars from Canadian taxpayers. For programs such as NISA and Agri invest and ad hoc payments. And some of those billions of dollars or mega millions of dollars went to Carguill by way of buying Carguill products.

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