WINNIPEG – Details on proposed changes to the Winnipeg Commodity Exchange canola contract aren’t due until May 15, but some industry players are hoping they will clear up how the new contract will affect farmers.
Switching to a warrant system from the current warehouse receipt will allow a greater threat of delivery against a futures contract, said Paul Orsak, a farmer from Binscarth, Man., who grows canola and sat on the task force that recommended the changes. That should help the futures and cash price converge more regularly in the delivery month, he said.
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He added the change will reduce basis volatility, enabling companies to hedge more effectively and pass on the better prices to farmers.
But he said moving the pricing point inland from Vancouver needs more study. “If you move the pricing point from an area of demand to an area of surplus production, my farmer logic says that that’s going to have a price-depressing influence on canola.”
Bruce Dalgarno, president of the Manitoba Canola Growers’ Association, said alternate prairie delivery points introduced last year by the exchange were a bust. He said grain companies wouldn’t let producers deliver against a futures contact at the points and he doesn’t see why that will change if the pricing point is moved inland.
Because the export market pays a premium over the domestic market, Orsak said only exporters will be able to get the premium. He’s not convinced they’ll pass it on to farmers.
More confusion
Errol Anderson, author of The Wealthy Farmer and a market analyst with Palliser Grains in Calgary, said farmers should be worried.
“If the farmer dug down to try to find out where this price is coming from, he would have a heck of a time … he doesn’t know what the export values are,” he said, adding he believes the majors will get more control of price discovery by moving the pricing point.
But Greg Kostal, a market analyst with United Grain Growers in Winnipeg, said the inland point will take transportation problems out of the futures price, allowing it to be driven by supply and demand.
Depending on the contract, Kostal added there could be more basis risk to the new contract caused by more “focal points” in the cash market, clustered around users including crushers.
“The forces that move the basis are going to be different than what they were before. I think a farmer is going to have to be more basis-smart.”
