The Western barley futures contract’s run at being a world barley contract is over and it is returning to its Alberta feedlot alley roots.
ICE Futures Canada Winnipeg exchange hopes the change can revive a struggling contract.
“Everybody I’ve talked to, both leading up to the changes and after the changes, were expressing a very strong desire to have a good working contract,” said exchange president Brad Vannan.
In 2006, the exchange jumped on the federal government’s decision to break barley from the Canadian Wheat Board’s monopoly to reform the contract to increase liquidity.
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It changed the delivery point to the Saskatoon area, the key production region, from southern Alberta, where most large feedlots operate. This was to make the contract useful for domestic malt and feed users and for offshore users.
But when the government failed to break the barley monopoly after a legal reversal, the exchange was stuck with a contract designed for a larger, multi-use market that didn’t exist.
Feedlot operators found the contract harder to use because of the Saskatoon delivery point.
Many farmers didn’t like the contract because only large grain companies were able to deliver against it, making the contract’s connection to the underlying cash market tenuous.
Vannan said the new contract should offer more direct connection between the cash and futures markets because delivery ability has been opened to a wider range of players.
“We wanted to bring in some feedlots, some grain dealers, maybe some large farmers,” said Vannan.
ICE lowered the financial requirement for delivery participants to $250,000 in liquid assets from $2 million Tying delivery to feedlot alley users should bring the contract back into a direct relationship with cash market grain flows.
“It’s a feed contract. It’s focused on anybody who is involved in the primary trade of feed barley,” said Vannan.
“If you’re a feedlot or a feed mill or a grain dealer or a farmer, you should be able to relate to this new contract very easily.”
Vannan said farmers grow eight to nine million tonnes per year, and about two million of that is malting quality, handled by the CWB, leaving lots of potential for the new contract.
“The market always had lots of depth,” said Vannan.
“The problem we had in the market was it wasn’t broad enough. We didn’t have enough participants in the market.”
Moving the delivery point to Lethbridge pleases broker Doug Chambers of Quality Grain.
The mid-Saskatchewan point “was just a boneheaded process,” said Chambers.
But he is skeptical of the exchange’s likelihood of attracting new users.
“Most (feed barley users) are good old boys. They’re cash only. They trade in the spot market. Probably less than 10 percent of the barley that’s traded is based on the futures,” he said.
Vannan said the exchange hasn’t given up the hope of expanding the reach of the contract to non-feed users and the offshore market.
“The big challenge barley has is it’s not just influenced by the evolving marketplace, but it’s also influenced by policy, and policy can change very quickly” said Vannan.
“The new contract is more or less immune to policy changes going forward.”
