WINNIPEG – The Aussies are definitely interested. And as long as other international exporters and consumers of feed peas use a new futures contract, people in the Canadian industry say it will probably fly.
“We think it has some real potential to bring in other players that we don’t usually see in the Winnipeg market,” said Peter Lloyd of XCAN Grain pool, who also helped design the contract.
Liquidity will be key to the contract’s success. Lloyd said the exchange made sure major players in Winnipeg liked the contract first. Now, he’s hearing a lot of interest from Australia, another major exporter of peas.
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The contract is a new element for an industry that has thrived on the risks of cash markets. The exchange said the contract will help with price discovery, and farmers say they’re looking forward to that.
But others say because of the amount of peas traded in the world, prices are already well-discovered.
“You can do a secret deal in the morning, and two hours later, everybody in the industry knows what it was,” said Brian Clancey, pulse crop analyst with STAT Publishing in Vancouver.
Robert McNab of Continental Grain, and also vice-president of the Canadian Special Crops Association, said the industry had mixed feelings about the contract.
Support required
But he said the issue now is whether the contract will get the support it’s looking for.
McNab said his company will use the contract if it generates lots of volume and open interest. “The only issue for Canadian companies who are looking at it as a hedge mechanism would be the foreign exchange fluctuation, which would affect the value in Rotterdam versus Canada,” he said.
“Obviously, another factor involved is ocean freight, which does move from time to time by enough that it would be an issue,” McNab added.
Clancey said he doesn’t think Canada’s small domestic industry, including feed mills in Western Canada, will be able to use the contract for hedging. “The basis has no relevance to them,” he said.
A special crops trader with Alberta Wheat Pool, which has a small domestic program, said he’s not sure whether the contract will be of use.
“If we can find ways to make the c.i.f. (cost, insurance freight) contract work as a hedge for domestic peas, and we’ll certainly be looking for them, we will definitely use it,” said Dave Macfarlane.
Bob Lafond, general manager of Roy Legumex Inc., said his company will wait and see how the contract goes over before deciding whether the company could hedge off it.
“It’s going to be interesting to see whether it’s going to go,” Lafond said. “It’s really, really hard at this point in time to see what participation there is going to be.”
