Farmers could lose their best open marketplace if the Winnipeg Commodity Exchange is taken over by an outsider, worry some market watchers.
A non-western Canadian owner might focus on the needs of commodity traders, not prairie agriculture, they say.
“I think they would streamline the operation more than adding more to it,” said Leo Meyer, a farmer and former WCE board member from Woking, Alta.”You wouldn’t have a truly agricultural exchange. I think you would have another investment arm for (commodity trading) funds.”
Meyer has been worried by rumours the WCE is considering a merger with or takeover by the Montreal Bourse, a larger exchange.
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The exchange will not verify whether it is considering a takeover proposal.
Montreal has a sophisticated electronic trading system and no physical trading pit. The WCE relies on “open outcry,” where floor traders make face-to-face deals.
Some worry a takeover would lead to an entirely electronic trading system, something that could undermine certain contracts.
“Traders are wondering what the future would be for a lot of these contracts,” said Winnipeg farm marketing adviser Mike Jubinville.
The WCE’s only large-volume contract is canola. Smaller contracts, such as feed wheat, feed barley and flax, might have trouble surviving without open outcry, he said.
Small-volume contracts rely on local speculators who work in the trading pits to create enough volume to keep contracts trading. An electronic system might cut them out.
“If they aren’t in a position to get a hands-on feel for the flow of that market and they have to rely on a computer screen, they may not use it,” said Jubinville.
Meyer worries that if the smaller contracts are lost, prairie farmers would have to use indirect American contracts to hedge their crops. Cross-hedges are less accurate and would leave farmers with more risk than they face now. And an owner from outside Western Canada would be less likely to introduce new prairie-based futures contracts.
“We don’t want to be forced to have to deal with Chicago or Minneapolis,” said Meyer.
He said he is distressed at the reports of takeover negotiations. He hoped that the exchange, which was turned into a private company two years ago through a process called demutualization, would have played a bigger role in minimizing farmers’ risks by offering a larger array of contracts. Instead, demutualization has led to few improvements at the exchange and has opened the door to a possible takeover, Meyer said.
Jubinville said a takeover could help the exchange by adding size and resources but people will be suspicious until they find out what is happening.
