Two commodity exchanges on opposite sides of the border are taking the unusual step of working together on a futures contract.
Last week, the Winnipeg Commodity Exchange and Minneapolis Grain Exchange announced they’ll look at the feasibility of a contract for North American durum wheat.
“We’re both small exchanges and I think together we can marshall resources that we wouldn’t be able to do alone,” said James Lindau, president and chief executive officer of the MGE.
The chair of the WCE’s board of governors noted 90 percent of the world’s durum exports come from the region around the Canada-U.S. border. Terry James said the recent Western Grain Marketing Panel concluded durum lacks an arena for price discovery and risk transfer.
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“Durum is basically a flat-price commodity,” James said, explaining prices don’t track another futures contract.
“Cash transactions are not transparent and sometimes there’s a liquidity problem.”
Board takes risk
Lindau said farmers have been most at risk in the U.S. durum market to date. He noted the Canadian Wheat Board absorbs some of the risk for Canadian farmers.
“(The farmer) doesn’t have the inter-market and cash market spread opportunities available that the big commercials have,” Lindau explained.
“So the only choice the farmer has had either is to sell it when the price is right or store it when he thinks he can get the price he wants.”
The president of the U.S. Durum Growers Association said he thinks it’s great the two exchanges are trying to make a go of a durum contract.
Richard Haugeberg, who farms south of Minot, N.D., said farmers would be able to protect themselves from risk and find forward pricing opportunities, as they do with spring wheat futures.
James said Canadian farmers would also benefit by knowing the price of durum in nearby and futures months. Canadian farmers could sell futures and buy them back when they deliver their crop to the wheat board.
“It would be a pricing signal,” James said. “Maybe it would help them make planting decisions, marketing decisions.”
Lindau said a steering committee will look at where and how the contract will trade. He hopes technology exists that will allow traders in both exchanges to buy and sell the durum futures at the same time.
The exchanges will also talk to players on both sides of the market, including the wheat board, millers, pasta makers, grain companies and farmers, said Lindau.
James said wheat board participation in a durum contract “would be a desire. We’d like to have the wheat board as a customer.” He said he didn’t know if a futures contract would work without the wheat board using it.
A spokesperson for the wheat board said it’s too early to say whether the board could use the contract.
“We’d have to assess (a contract) if in fact it came into being whether it would be of any value to us,” said Brian Stacey, adding the wheat board is a major player in the durum market.
