There is no shortage of feedgrains in Western Canada.
That’s the factor behind the near absence of trade in Winnipeg’s feed barley futures contract, the head of ICE Futures Canada said.
“Unfortunately, what we need is a little bit of risk out there,” said exchange chief executive officer Brad Vannan.
“One of the functions of a futures market is to transfer risk, and if there’s no perceived risk, they don’t necessarily need that tool now.”
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Because of this situation, the exchange is waiting for the cash barley market to revive before judging whether the new barley futures contract is viable.
Recently, the barley contract has been untraded and there is low open interest. Vannan said that’s a danger to the life of the contract because public markets survive only as long as they act as a price discovery mechanism through the actions of buyers and sellers.
Cash market traders report almost no forward pricing in the prairie barley market, which they attribute to several things, including large supplies of barley, durum flowing into the feed market because of poor export prices and large amounts of imported distillers grain from the U.S. Midwest arriving in southern Alberta.
Also, feed demand is down because of smaller hog and cattle herds.
At the same time, farmers are not keen to sell into a falling market, even though there are few concrete reasons to believe prices will rise in coming months, brokers say.
The contract was re-engineered a few months ago to meet the needs of the feed market, rather than the overall barley market, and those revisions have been well received, Vannan said. Initial use was encouraging, but the recent slump is worrisome.
However, because of weak market conditions and lack of volatility, the exchange does not believe the revisions were poorly designed.
“I think we came up with a good contract and I’m hesitant to change it unless someone tells me there’s a fatal flaw in the contract that needs to be fixed, and no one’s told me that,” said Vannan.
