Moribund. Silent. Lifeless. Nearly dead. One-sided. Collapsing out of boredom.
For the past few months, Brian Clancey has stretched for adjectives to describe the almost nonexistent trade in feed pea futures at the Winnipeg Commodity Exchange in a daily summary he sends to his subscribers.
But the futures contract, and Clancey, may soon be put out of their misery.
Pending approval from some provincial securities commissions, the exchange will list a field pea contract starting with the June 1999 delivery month. The exchange hopes for a fresh start.
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“It really is a completely new contract,” said spokesperson Sandra Craven. “I think that this is going to be a much better tool for farmers.”
The new contract will look like the exchange’s canola and flax contracts.
It will price peas in Canadian dollars free on board (f.o.b.) at points across the Prairies, excluding the Peace River area.
The old contract priced peas in U.S. dollars including cost, insurance and freight (c.i.f.) to northern European ports.
Farmers found it hard to relate the old futures price to their local prices, explained Craven.
“The price was just so far away from the farmgate in Western Canada.”
The basis, or difference between cash and futures for the old contract, included rail freight to port, elevation, ocean freight and currency.
Unwilling to change
The exchange designed the first contract in hopes of attracting interest from Europe and Australia, interest that Craven said never really panned out. European traders were reluctant to change their traditional way of doing business, said Craven.
But pointing to international use of the canola futures contract, she reasoned the new contract, if popular with Canadian players, could still attract interest from outside the country.
Meanwhile, the Canadian feed industry is using more peas in rations, so it makes sense for the exchange to list a contract mirroring prairie prices.
In the long run, the industry expects exports to Europe to remain stable, while exports to Asia grow. A European-based price wouldn’t make sense to Asian users, noted Craven.
Gordon Cresswell, who has grown peas on his Tisdale, Sask., farm since the mid-1970s, says farmers are looking forward to using the new contract for hedging.
“You’re able to spread that risk around rather than take it all on yourself,” he explained.
Farmers will be able to sell and buy contracts to lock in favorable prices, and processors will be able to use the futures market to offer deferred delivery contracts to farmers, said Cresswell.
He thinks if feed companies can hedge their pea purchases, just as they do for ingredients like barley, feed wheat, canola meal and soybean meal, they might be more inclined to use peas in their rations.
But Clancey, market analyst with Stat Publishing, is still skeptical about the contract’s chances to attract volume and open interest.
He said the delivery months of February, April, June, August, October and December don’t make sense. It would have been wiser to stick with the same contract months as other feed grain contracts at the exchange.
The pea industry, dominated by specialized companies, has long had a “vibrant, vital, highly liquid” forward trade in cash contracts, Clancey added.
Most major pea dealers aren’t exchange members, and would face added costs to start to hedge their risk using the futures contract.
“I don’t care how good something is, if it costs me more money, I’m not going to do it,” Clancey said.
