VANCOUVER – Futures contracts may be available to pulse growers in the not too distant future
David Rutledge, chief executive officer of the Dubai Multi Commodities Centre in the United Arab Emirates, said his company is contemplating offering contracts for yellow peas, red lentils, desi chickpeas, pigeon peas, black matpeas and possibly other pulses.
“My sense in talking to people is that there’s a genuine need for this,” Rutledge told delegates attending the Canadian Special Crops Association’s annual convention.
The exchange would meet the growing need for a global pulse price discovery mechanism and provide companies with the ability to hedge risks.
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The contracts would be for 25 tonnes of product or one container load. They would be priced in U.S. dollars with a minimum fluctuation of 10 cents per tonne. Delivery would likely be f.o.b. at export position.
It is an idea that is long overdue, one that should be embraced by traders and growers, said Martin Chidwick, vice-president Canadian operations for Bissma Pacific Inc., an international pulse crop trading firm.
“By participating in an international market like this we can send (growers) the signals that what you’re hearing from us in terms of where pea values should be or lentil values should be is very evidently supported by the activity of customers, traders and suppliers in Turkey and in India and the Middle East.”
A Dubai exchange would assist companies like Bissma with the annual production riddle in regions like India and Turkey where crop reports are often intentionally misleading. By watching the futures markets they can discern whether buyers in those countries are long or short on crop.
“The rumours we are hearing of a bumper crop or a problem are backed up by that transparent activity,” said Chidwick.
Lastly, a futures market should make growers more comfortable. It will eliminate some of the hesitation that exists in today’s pulse markets due to weather and delivery concerns.
But some delegates were wary, saying this experiment has been attempted before by exchanges in India and Winnipeg and ended in failure. In India, speculators manipulated the market, forcing prices higher than they should have been.
Rutledge said there are a variety of methods for controlling speculation and suggested the Indian exchanges may have lacked experience.
Peter Wilson, manager of North and South American operations for J.K. International Pty Ltd., wondered if Canada’s two national railways had been consulted because if the delivery terms require getting the product to export position on a specified date, there could be big problems.
Only two percent of contracts traded typically result in delivery, but a contract is worthless unless there is the legitimate threat of delivery, said Wilson.
Rutledge said Wilson made a good point about delivery specifications, given Canada’s transportation problems. He said they may have to consider selecting inland delivery points.
Ashok Fogla, an exporter from Great Neck, New York, said only a handful of countries export yellow peas, red lentils and desi chickpeas. He wondered who would pay if the seller abandons a contract in the face of a crop disaster.
Rutledge said the same thing can happen without an exchange, but at least with the ability to hedge risk can be mitigated.
Chidwick estimated a Dubai pulse futures contract could be ready for trading within one or two years.
