Many U.S. spring wheat traders doubt a new Canadian futures contract will survive.
However, others say flaws in the Minneapolis Grain Exchange wheat contract make a Winnipeg ICE contract possible.
“If ICE were to structure it correctly … I think it could really compete against MGEX,” said Charles Soule, chief spring wheat trader for Country Hedging.
“The way the Minneapolis spring wheat contract is structured, with delivery in Duluth and the Twin Cities, to me doesn’t make a lot of sense when the west coast is your major market.”
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The ICE Futures Canada exchange in Winnipeg has announced plans to launch new spring wheat and durum futures contracts and revamp the barley contract to coincide with the end of the Canadian Wheat Board’s monopolies, which is expected for the 2012-13 crop year.
Soule said it’s doubtful that traders who now use the MGEX will support another wheat futures contract. However, he thought a well-designed Canadian spring wheat contract might work for Canadian commercial users and farmers, and might do better than the Minneapolis contract in the long run.
“I don’t see a situation where the farmers or companies in Manitoba or Alberta or Saskatchewan are going to tie themselves to a delivery point (in the U.S. Midwest),” said Soule.
He thinks a Canadian commercially based contract, with delivery points at the West Coast or at major inland grain elevator points, could work better than the Minneapolis contract, which is based on delivery points that were determined when most grain went through the Great Lakes and down the Mississippi River.
Rich Nelson of Allendale, Inc. said low liquidity in Minneapolis opens the door to a Canadian contract, although a stronger Minneapolis contract would leave no room for a new contract.
“The Minneapolis (contract) hardly trades enough.”
However, he said even a well-designed Canadian contract will have a Herculean task in getting off the ground.
“In my opinion, it probably won’t garner as much as they’re hoping.”
Austin Damiani of Frontier Futures agreed.
“It’s such an uphill battle to start a new contract,” he said.
“It’s very difficult to get traction, to gain liquidity, and without liquidity it’s essentially useless. I think it’ll be hard to take market share.”
Damiani said the Winnipeg exchange wouldn’t find it any easier to set up a durum contract, even though there are no North American durum futures contracts.
“The problem with the durum market is that it’s not very transparent,” he said.
“It’s dominated by one or two companies, so you don’t have the market participants that you need for contracts to work.”
However, Nelson thought durum had a better chance of working because of the small and opaque nature of today’s industry.
“Every durum participant in the industry wants a contract,” he said.
“They’re tired of pricing off the spring wheat contract, especially when there are supply and demand shifts that aren’t recognized in the spring wheat contract.”
