Promoting contract on Prairies | The Minneapolis Grain Exchange wants to be where Canadian wheat is hedged
MINNEAPOLIS, Minn. — A new era is about to open for the Minneapolis Grain Exchange.
The exchange expects to become the hedging home for the giant western Canadian spring wheat crop.
“So far we haven’t see any big roadblocks,” said James Facente, the MGEX’s director of market operations.
“There are quite a few little nuances (between the Canadian and U.S. commercial markets), but nothing large.”
A fierce battle broke out this winter for the hedging business of Canadian farmers, grain companies, grain buyers and speculators, pitting three major agricultural derivatives marketplaces against each other.
Read Also
Working groups established to address challenges in the containerized and bulk movement of commodities
CN is working with the pulse and special crops sector on resolving challenges in shipping those commodities.
The existing MGEX spring wheat contract has been put up against the Chicago Board of Trade’s soft red winter wheat contract and the Intercontinental Exchange’s new Winnipeg-based hard red spring wheat contract.
With the ending of the CWB’s monopoly Aug. 1, many believe there will be significantly more futures and options trading for Canadian hard red spring wheat as the free market takes over risk management from the CWB’s pooling approach.
The MGEX has been aggressively promoting its 129-year-old spring wheat futures contract to Canadian farmers. It has made many modifications to the contract to convince farmers and commercial grain players that its prices will accurately reflect cash market prices in Canada as well as in the United States.
For instance, non-American wheat can now be delivered against the contract.
The CWB was a major user of the MGEX, using it as a price basis for many of its Producer Payment Options and as a way to reduce the danger to the federal government’s financial guarantees.
However, individual grain farmers did not use it much because CWB pool prices often diverged greatly from futures prices.
Whether or not the Minneapolis contract truly represents the prairie commercial marketplace still remains to be seen.
Many in the grain trade say forward commercial sales of prairie wheat have been lighter than usual because of the unsettled nature of the post-CWB environment.
No one knows what kinks might appear as the open market dawns.
The prairie provinces and the U.S. northern Great Plains states grow the same type of wheat but generally different varieties.
Both crops are high-protein spring wheat crops, but specification regimes have been different across the border.
The two wheat crops are exported by different railways, and the American crop has an extra export outlet that the Canadian crop does not: the Gulf of Mexico.
As well, the American crop relies on the export market for only 48 percent of its sales, while the Canadian crop is overwhelmingly exported.
Does any of this mean the Canadian crop will see significantly different pricing on the Prairies compared to North Dakota or Montana, which would make the MGEX’s American-based contract risky for Canadian users?
Most analysts don’t expect significant cash market price spreads. The MGEX is pushing the idea that the Minneapolis contract isn’t just lumping in the Canadian crop with an American crop contract but is trying to develop a North American wheat contract.
“Eventually, I just want it to be North American spring wheat instead of Canadian and U.S.,” said Rita Maloney, the MGEX’s director of marketing.
“I’m trying to blur in my own mind that border because North Dakota goes right up into you and Montana goes right up into you.”
Maloney said the MGEX hopes to solidify its futures contract as the world’s premium quality and protein wheat hedging tool, representing a huge pool of high protein wheat and a large part of the world’s export stocks.
The MGEX contract already diverges from the CBOT soft red spring wheat contract and the Kansas City Board of Trade hard red winter wheat contract because of supply and demand fundamentals and world protein values.
Maloney hopes more volume from increased Canadian use will strengthen that independent life.
Canada’s reputation for high quality wheat could help the American crop piggyback into higher values.
“People love Canadian wheat,” said Maloney.
“There are countries that will only buy Canadian spring wheat. It’s also our job to convince those people that we have great wheat, too.”
MGEX analyst Joe Victor spent a lot of time on the Prairies this winter promoting the MGEX contract. He’s hoping increased use will allow the vast size of the spring wheat crop to bring higher visibility for its main derivative instrument.
The Chicago winter wheat contract is by far the most traded wheat derivative, but the North American spring wheat crop is a much, much larger crop, larger even than the hard red winter wheat crop.
“As (spring wheat trading) grows, maybe it’ll get a little more notice out in the world,” said Victor.
