As international trade barriers start to give way to freer world trade, the Chicago Board of Trade is looking at whether the world needs an international milling wheat futures contract.
The manager of the exchange’s commodity products said the decline of domestic subsidies may lead to more volatility and price risk in world wheat markets.
“In the past, governments have shielded market participants from a lot of that risk through the use of subsidies and other types of trade barriers,” said David Lehman.
He said an international milling wheat contract would probably appeal most to major buyers and sellers of wheat such as merchandisers, exporters and millers.
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The exchange has talked to some players in world wheat markets, but hasn’t yet surveyed a broad cross-section. So far, no consensus has emerged.
Canadian Wheat Board policy analysts have heard about the exchange’s idea, but haven’t taken a position on whether it would be a good price discovery instrument or hedging tool.
Spokesperson Brian Stacey said: “The usefulness of such a market from our point of view is difficult to answer at this time without knowing what types of wheat commodities would be traded on that.
“The volume and liquidity of the market would determine how useful a tool it is to some of our buyers.”
The contract would have to be unique from existing wheat futures contracts, yet relevant to the people who use Kansas City, Minneapolis or Chicago wheat futures, Lehman said. An international contract wouldn’t necessarily replace existing futures contracts, either.
A spokesperson for the Winnipeg Commodity Exchange said an international contract probably wouldn’t affect its domestic feed wheat futures contract.
“We’re not in that milling wheat market,” said Sandra Craven, explaining prices posted on the WCE’s boards relate only to feed wheat bought and sold in Canada.
The exchange’s study is on hold for now because of some separate issues surrounded existing contracts for corn, soybean and wheat.
Once those are settled, Lehman expects a task force will again examine whether an international milling wheat contract is needed.
