Market observers expect the Minneapolis Grain Exchange’s hard red spring wheat contract to remain the dominant market for prairie wheat pricing, no matter who owns it.
The future of the MGEX is up for speculation since CME Group and the Kansas City Board of Trade last week announced the former will buy the KCBT and its hard red winter wheat contract for $126 million US.
That started rumours that MGEX might be the next target of CME Group or the Intercontinental Exchange (ICE).
Regardless of whether MGEX remains independent or is sold, there will be little difference for farmers hedging hard spring wheat.
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“From a practical standpoint, I don’t think it will have a lot of impact,” said Jon Driedger of FarmLink Marketing Solutions.
That was also the view of the Money Farm’s John Ulrickson .
“It should mean absolutely nothing,” said Ulrickson.
If the KCBT sale is approved by shareholders and regulators, it will give CME Group overwhelming dominance in North American grains contracts. It already owns the Chicago Board of Trade’s hallmark corn, soybeans and soft red winter wheat contracts.
ICE has been aggressively pushing into grain long dominated by Chicago and has launched a number of products to challenge Chicago’s supremacy.
The CME Group already provides the trading system on which Kansas City and Minneapolis rely.
If CME gets KCBT, then there will remain two independent wheat trading exchanges,Minneapolis and ICE Futures Canada. Both trade prairie hard spring wheat.
If MGEX were put in play and CME Group bought it, then the Chicago based company would have almost total domination of North American grain futures trading.
The new Winnipeg ICE grain contracts are scarcely traded, even though canola futures trade is robust.
If ICE bought MGEX it would take another step into the grain market thanks to Minneapolis’ long-operated and well-supported grain futures contract.
“They have their little war, and this is just one front,” said Driedger about the Kansas City takeover deal.
He noted that Chicago, Kansas City and Minneapolis all use the CME Group’s trading platform, but if ICE bought Minneapolis and forced it to use its trading platform, it could weaken the hard red spring wheat contract.
“Some users might not want to bother (with two platforms),” said Driedger.
