There are few mixed feelings about the comatose flax futures contract.
“It’d be good to have it there again, no question,” said Paul Martens, who operates Prairie Flax Products west of Portage la Prairie, Man.
“We used it and now we can’t.”
Throughout the flax industry people say they wish they had a functioning flax futures contract with which to hedge their financial risks.
But the contract has been pulled from trading at the Winnipeg Commodity Exchange while officials there talk to the industry and try to redesign the contract so people will use it.
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Contract use has petered out a number of times in recent years.
Various technical changes have been made – the newest version is traded in U.S. dollars – but none has been able to boost the number of people using the contract nor the amount of flax being hedged through it.
It’s been stumbling along so long that the industry is now used to not having a viable hedging mechanism.
“It’s fallen into the category of a special crop that doesn’t have a contract,” said Barry Hall of the Flax Council of Canada.
Farm marketing adviser Brenda Tjaden Lepp agreed that flax has wandered into the special crops category.
“It’s already there,” she said.
But this summer’s flax market has shown the need for a futures contract.
“We saw the market go crazy this spring, and it would have been nice to have been able to hedge that,” said Tjaden Lepp.
From March-April bids of $8.75-$9 per bushel, flax has risen to $11.75 in the cash market recently.
“That’s a huge increase in the market, and that hurt someone, I think, a lot,” said Tjaden Lepp.
She and Hall said the futures contract is sorely missed.
“The willingness (to use it) is there,” said Hall.
“The players are sincere in trying to make this work. But buyers are going to have to be willing to use it as well, and that hasn’t been the case.”
Hall said grain company trade in the contract declined as mergers brought together several former competitors. With fewer links in the chain, there are fewer transactions to hedge.
Hall said a redesigned flax contract could work if done right. But the problem with a new futures contract is everyone’s scared to be the first to jump into the pool.
“It’s always difficult when you lose that critical mass,” said Hall. “In a thin market it’s easy to lose money.”
Tjaden Lepp said farmers now have no way of knowing the open market price for flax because there is no open market. With no WCE futures price, farmers have little way of discovering a basis from any buyer.
“You can’t look at the board and assume everyone’s basis is somewhat competitive,” she said.
Prices can vary by $1.50 per bu., and the only way a farmer can ensure he gets a good price is to work the phone.
“You really need to do your homework,” said Tjaden Lepp. “You want to call every single buyer out there.”
Martens, who buys flax from farmers and sells his processed product to users, said his life is more difficult now that he can’t hedge his risk.
It’s hard to figure out what a fair market price is.
“You just have to decide what you think the price is out there,” said Martens.
