It’s hard for farmers to figure out whether the small grain exchanges in North America really matter, including the Prairies’ local futures market: the Winnipeg Commodity Exchange.
They praise the WCE’s canola contract, which gives farmers an openly derived world price for canola, freeing them from having to trust grain companies and other buyers to set fair prices.
But the exchange’s other contracts, such as barley and feed wheat, draw much less praise and the oats and flax industries appear to be doing fine in the wake of the exchange’s failure to keep contracts alive for those commodities.
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So, does the Winnipeg exchange make a difference? Would anything be lost if its functions moved to another place, like Chicago? Would it matter if it died?
“It’s important to have a Canadian exchange,” said Bern Kotelko, a cattle feeder from Vegreville, Alta., who is on the exchange’s board of directors.
“It’s important to have it here.”
The opposite view comes from Leo Meyer, a farmer from Rycroft, Alta., and a former member of the exchange’s board of governors.
“I don’t think it means very much,” Meyer said.
“I don’t think there’s a specific value for a small market.”
Ernie Sirski, a farmer from Dauphin, Man., and canola industry expert, has a gut feeling that having a homegrown derivatives market matters, but is hard-pressed to explain why.
“I still think there’s a role for it to play,” Sirski said. “It’s nice to have it.”
Across North America small commodity exchanges have seen their fortunes swing wildly in the past decade. During the turn-of-the-millennium tech boom, the small exchanges had to frequently deny early reports of their demise, but many of their own users began to doubt their place in a rapidly consolidating and digitizing world.
Now the small exchanges are enjoying boom times as investment money pours into the commodity markets and makes everyone seem viable again. The same goes for big commodity exchanges and stock exchanges in most places.
But question marks hang over the smaller exchanges, and if today’s boom quiets down or busts, will those obituary stories appear.
In recent years Winnipeg lost its oat and flax contracts and didn’t replace them with viable new contracts. A canola meal contract was designed, erected, opened to the public and lurched to a quick collapse.
University of North Dakota economist Bill Wilson argued that the small regional exchanges, such as Winnipeg, Minneapolis and Kansas City, are vital for farmers because they are the only ones with an incentive to produce prairie and western specific commodity contracts.
But those types of contracts don’t appear regularly, and some of the present ones have dubious value. The opposed views of Meyer and Kotelko reveal a half full-half empty split about the exchange’s barley and feed wheat contracts.
To Kotelko, the contracts are sometimes annoying but still useful.
“It’d be nice to have a little more volume to it,” he said about the barley contract, the occasional illiquidity of which sometimes forces him to hedge his feed grain exposure with Chicago Board of Trade corn futures.
To Meyer, the feed grain contracts add more risk than they replace.
“You don’t want to go in there,” he said about low barley volume. “What kind of contract is that? There’s no value.”
Sirski said there’s little doubt that Winnipeg’s canola contract is a good tool for prairie farmers because it sets prices in Canadian dollars and has Canadian delivery points.
Whether that type of service can be offered to other farmers’ crops is an open question. If it could be, farmers would greatly benefit, he said.
“Canada still grows a significant amount of the world’s exportable grains,” Sirski said.
“It’d be nice to have a price-setting mechanism here in Western Canada.”
Sirski, Kotelko and Meyer all say that the Winnipeg market could become more relevant for farmers if the Canadian Wheat Board lost its monopoly and the exchange could produce a good hard red spring wheat contract.
But Meyer, who thinks the exchange has lost its way since becoming a private company, doubts that a viable hard red spring wheat contract could be designed.
“What would be the difference (with the wheat contracts in Chicago, Minneapolis and Kansas City)?” he said. “Are we adding confusion or are we adding value?” Kotelko said the Winnipeg exchange may have shrunk in recent years, but with the present commodity boom, there’s a hunger to build new business and less desire to play defence.
“With electronic trading, it’s easier to launch a new contract,” he said.
“Now that there’s some profit and some dollars there, we can start looking at some of those contracts.”
For now, the small exchanges are surviving, but each will have to prove its value to farmers in the future because for many they don’t appear to be dynamic parts of the agriculture industry.
“In reality, we could still function (without exchanges like Winnipeg),” Sirski said.
“The market would not disappear.”
