There isn’t much hope for a Winnipeg spring wheat futures contract if the problems with the Minneapolis contract are any guide.
Problems with the December Minneapolis spring wheat futures contract are so severe that most North Dakota grain elevator companies abandoned it a month ago and have engineered a replacement.
“The December Minneapolis contract has been so erratic … the commercial people, the people buying the wheat, have switched their bid process over to the March contract,” said Mike Krueger, owner of the Money Farm advisory service in Fargo, North Dakota.
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“There was some thinking they might go all the way to the May (contract), which would be way out of character. That’s never happened before.”
Local elevator bids in the Great Plains are now based on March Minneapolis spring wheat futures, which seem less volatile to commercials. As well, the basis level is designed to approximate what farmers would have got had the companies stayed with the December contract, Krueger said.
Krueger said the grain companies aren’t worried so much by the price of the December contract as with liquidity problems and the ability to get out of positions. Trading even a tiny amount of grain can shift the price.
“That’s a problem, and it’s not a good problem,” said Krueger.
“If we put in an order for four contracts of Minneapolis December spring wheat, we may get a fill that’s a penny or two or three cents apart among those four contracts,” he said.
“If you’re a commercial that’s trying to buy a lot of contracts, it’s just difficult (to justify taking on that sort of execution risk).”
Many traders have complained about illiquidity in Minneapolis futures, even as the exchange racks up record numbers for trading.
However, Krueger said he thinks much of the trading is in passive positions that don’t provide effective trading liquidity.
He said traders will abandon the market if various contracts keep having this problem.
“If there continues to be a big concern about liquidity in Minneapolis futures, they’ll just quit using it altogether, and they’ll start basing spring wheat futures on Kansas City or Chicago.”
These problems don’t bode well for ICE Futures Canada’s hopes for a Winnipeg spring wheat futures contract, which it has developed but not yet activated.
Spring wheat is a small crop compared to other forms of wheat, so having two head to head North American spring wheat futures contracts competing when the existing one is already having trouble with liquidity is unlikely to improve the situation.
“It’s going to be a struggle to make it work,” said Krueger.
Watch for a special report about the coexistence of GM crops with conventional and organic crops in the coming weeks in the pages of The Western Producer.
The solution to the world hunger crisis is not growing more crops, says the United Nations’ Food and Agriculture Organization s.
“The main cause of hunger in the world is not lack of food production, it’s poverty,” said Ann Tutwiler, deputy director general of the FAO.
Enough calories are produced around the world to feed everybody, she said. The problem is crops are not grown where they are most needed and people in impoverished areas are too poor to pay for the excess production of exporting countries.
She said addressing poverty is the solution for the hunger crisis and the best way to do that is by making farming more profitable.
“Studies have indicated that agriculture is six times as effective at poverty reduction as industrial growth,” Tutwiler told delegates attending the Coexistence Between Genetically Modified and non-GM Based Agricultural Supply Chains conference.
She said extreme price volatility in the grain and oilseed sector is contributing to the hunger problem. Price spikes in 2008 and earlier this year pushed an estimated 44 million more people into poverty.
Price spikes are temporary by nature, but they have lasting ramifications. Farmers in the developing world do not benefit from the rising price of exported grain. Instead, they are forced to sell livestock and cut back on inputs to feed their families.
The FAO is forecasting a 20 percent increase in the price of cereal grains and a 30 percent hike in the price of meat over the next decade.
Tutwiler said the good thing about the recent price spikes is that it has drawn attention to the plight of the world’s poor.
“Now we need to make sure there is political will to match the political attention.”
Technology transfer is the key to improving the plight of subsistence farmers and helping them cope with continued price volatility.
Tutwiler said African farmers could be two to three times more productive if they had access to the knowledge, technology and seeds available in the developed world.
Genetically modified crops could be part of the solution, but big concerns need to be addressed with the technology.
“We really need to figure out how to deal with intellectual property issues in the area of seeds because I think it is becoming a real psychological and political barrier to the acceptance of biotechnology,” said Tutwiler.
She said it is frightening that farmers are questioning the benefits of hybrid seeds over fears of becoming captive to technology companies. Those fears are spilling over and casting doubt on other previously accepted technologies.
The variations in profits where GM crops have been adopted in develo p ing nations also needs to be addressed.
Indian farmers in the state of Tamil Nadu have realized huge profits through the adoption of BT cotton while growers in the neighbouring state of Andhra Pradesh have received little return on their investment.
The profit discrepancy is the result of seed industry fraud and state-mandated seed price caps in Andhra Pradesh, which have caused technology companies to send their worst material to that state. That in turn has led to a backlash against GM crops in Andhra Pradesh.
“We need to make a better case for why these new technologies can benefit farmers and why they aren’t just rich country crops,” said Tutwiler.
The FAO predicts a world population of 9.1 billion people by 2050.
“We’re going to have an additional two Chinas to feed,” said Tutwiler.
The increased population will require an additional one billion tonnes of cereals, 200 million tonnes of meat, 175 million tonnes of oilseeds and 800 million tonnes of fruits and vegetables annually.
The FAO estimates 85 percent of the growth in productivity in the developing world will have to come from yield increases, with the remainder from bringing additional land into production.
Farmers will need an additional $209 billion per year in private agricultural research and development to improve yields, or 50 percent more than the current annual investment.
There also needs to be increased investment in public research and development because private companies don’t tend to focus their efforts on the crops and climatic conditions of developing countries.
Tutwiler said it is important that new technology is delivered to women, who make up the majority of farmers in developing nations. They have not had the same access to productive resources as men.
