Canada’s new spring wheat, durum and barley contracts have gotten off to a weak start, but that’s both to be expected and actually encouraging.
“There hasn’t been a lot of volume, but there have been a few trades in everything,” Ken Ball, a broker with Union Securities in Winnipeg, said about the new ICE Futures Canada milling wheat, durum and barley contracts, which started trading Monday.
“It takes a while. It’s a chicken and egg game. I’m sure there are thousands of people out there who would like to trade, but they won’t until they see more volume. It’s hard to get them rolling in these first days.”
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Ball said the fact that anyone would trade anything right off the bat means people want to use them and are excited about the prospect. But for speculators, who will be an important part of any contract that works, there has to be trading first between grain companies and grain buyers before they will start using the new contracts.
“I don’t think any hedge funds will venture in there until they see a couple of thousand contracts a day,” Ball said.
And he won’t get his farmer-clients into the new futures until he sees there is enough ongoing volume to ensure they can get out easily when they want to.
The 100 tonne size of each contract, which is five times the size of the canola contract, pushes many farmers away from dipping a toe in the pool.
“Even I might go in there with a contract for 20 tonnes, just to be in there in the first days, but 100 tonnes? If you got trapped in a thin market and someone started jerking the prices around, you could really get caught,” said Ball.
Errol Anderson of Pro Market Communications agreed.
“We aren’t willing to come forward until we see better liquidity,” said Anderson. “We don’t want to put a client at risk. I’m just waiting for the commercials to step forward and start using it.”
The new contracts are based on prairie elevator delivery points and are designed to reflect values on the Prairies rather than at port.
