New contracts for spring wheat and durum will be ready for launch instantly if the federal government eliminates the Canadian Wheat Board’s monopoly marketing powers, says the Winnipeg Commodity Exchange.
Good idea, and good luck, say market observers.
“Durum has been tried and has failed in Minneapolis,” said one industry observer who did not want to be identified.
“Spring wheat is already traded in Minneapolis. The business is there. Winnipeg would be trying to compete with that.”
The WCE announced its intention to develop new contracts because it will soon be talking to the grain industry about the idea, said exchange vice-president Will Hill. Change is in the air, he said.
Read Also
Bond market seen as crop price threat
A grain market analyst believes the bond market is about to collapse and that could drive down commodity values.
“It’s appropriate timing given where we’re at with the new government,” said Hill.
“I think we want to be proactive on the issue and make sure that if and when there’s a change to the marketing system in Canada, we’re prepared to move forward.”
Wheat board spokesperson Maureen Fitzhenry said no imminent change has been announced or expected for the board’s monopoly marketing powers, so the exchange’s proposal is speculative.
The exchange will design contracts specifically tailored to Canadian durum and spring wheat, Hill said.
Observers say the durum failure at the Minneapolis Grain Exchange does not bode well for Winnipeg’s attempt.
“Getting a new contract started can be a real challenge,” said Ken Ball of Union Securities.
“Even if it’s well designed, it’s hard to get people to use a new product.”
Durum is a relatively small world crop, so trading interest might be limited, added Errol Anderson of Pro Market Communications.
Hill said his exchange believes a durum contract would work because Canada produces a large crop. Without the wheat board monopoly, the industry could find a durum futures contract useful.
But one observer noted that there’s almost always an oversupply of durum, with the wheat board often able to move only a portion of the crop each year, so trade in a durum contract might not attract the speculative users necessary for liquidity.
Spring wheat, too, will be a hard contract to make viable, observers say, because Canada’s hard red spring wheat is similar to the wheat traded on the Minneapolis exchange.
The Kansas City Board of Trade offers a futures contract for bread-quality red winter wheat and the Chicago Board of Trade offers futures on baking and pastry style winter wheat, neither of which directly compete with the Minneapolis contract because the crops are different.
But the Minneapolis crop specifications are so similar to Canada’s hard red spring wheat that most CWB sales prices are based off of Minneapolis. Also, the wheat board does its own hedging with Minneapolis contracts and has a seat on the board of directors of the MGE.
“Is there a need for two (contracts for hard red spring wheat?)” said Anderson.
“I don’t know.”
Hill said crop specifications for the spring wheat contract will likely be similar to the Minneapolis contract, but the Winnipeg contract will have Canadian delivery points and may better reflect the world wheat market.
The WCE’s announcement of its intention to develop contracts for a monopoly-free western Canadian wheat and durum industry has been seen by some as an attempt to promote the new Conservative government’s interest in breaking the monopoly.
The exchange is mostly owned by grain companies that would control more of the marketing process if the board had to give up some of its marketing control.
Hill doesn’t deny that ending the board’s monopoly powers would be a boon to his exchange.
“There’s no doubt about it that the change would be positive for our business,” said Hill.
“Our volumes, I think, would increase dramatically.”
But he denied that the exchange is trying to push the move.
“We’re not advocating change. We’re just saying that if change occurs, we will be there.”
One group lobbying in favour of breaking the board’s monopoly was thrilled by the exchange’s announcement.
“We applaud the exchange and those companies who are preparing for the exciting opportunities that will come with marketing choice,” said Cherilyn Jolly-Nagel, president of the Western Canadian Wheat Growers Association.
