Prairie farmers will have a bigger and better risk management tool at the Winnipeg Commodity Exchange if the Canadian Wheat Board’s monopoly is broken, says exchange vice-president Will Hill.
No longer will farmers rely on a domestic-only price, based almost entirely on the demand from the Lethbridge area where feedlots are prevalent, but will have a price more accurately reflecting the world price of feed barley.
“We think this contract has a huge potential to become a world contract, as canola has done, and we think you’ll use the barley contract in the way canola growers use the canola contract today,” Hill said.
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The exchange revamped the contract’s specifications in the summer, changing the pricing structure so that the basic price for barley would no longer be set in southern Alberta but in a zone around Saskatoon, with a basis spreading out from there.
What’s different recently is that the exchange is now estimating a port price for feed barley, which is an approximate Vancouver in-store price based on Montana-offered prices converted to a Portland price, shifted to Vancouver, with backed-off prices given for points on the Canadian Prairies.
The reason for this is to allow prairie farmers who use the barley contract to have a sense of the offshore price of feed barley, Hill said. No other future-looking world barley prices are available. The wheat board’s Pool Return Outlook is not a true future-looking price because it includes previous and existing sales as well as future price projections. As well, new crop PROs never look farther away than 17 months.
Hill said the barley contract will likely remain just a domestic feed market contract as long as the wheat board keeps its barley monopoly, but if the monopoly was removed, then barley exporters in the United States and Australia and other buyers around the world could use the WCE barley tool.
Mid-prairie farmers who use the WCE contract will benefit in a non-monopoly environment, Hill said, because the export and domestic markets will arbitrage, meaning the hefty discount Saskatoon and northeastern Saskatchewan barley suffers against Lethbridge today would shrink. No longer would truck-serviced Lethbridge be the only player setting the price; the rail-serviced Vancouver market would also compete.
“What we would expect to happen if these numbers are right and sales happen, you would expect to see the cash price in Saskatoon to be much higher than it is today because people would be buying that product and shipping it offshore, which would raise the price in the par region,” said Hill.
“Right now there is no way to arbitrage the export price because the east-west freight differentials and the north-south differentials are not the same.”
Hill said a well-functioning WCE international barley contract will help barley growers make the crucial decision of how much of the crop to plant.
“Part of what a futures market does is project a price curve forward that allows farmers to know what the value of their crop is,” said Hill.
