On July 30, the Minneapolis Grain Exchange launched a new futures contract for feed barley, designed to look after the thriving central California market for barley.
But the MGE isn’t just counting on U.S. interests to help make the contract successful.
Canadian buyers and end-users have figured in the exchange’s plans when it was considering how viable the market would be, said David Bullock, the MGE’s senior economist.
“If there was just U.S. participation (in the contract), it would be more marginal in terms of its prognosis for success,” he said.
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One of the ways the MGE judges whether a market can support a new futures contract is the size of the cash market. Bullock said $1-billion (U.S.) of business done on a yearly basis is the benchmark figure.
The U.S. barley market, taken alone, accounts for about $850 million. The rest, he said, is made up by an increasing number of Canadian feed barley imports.
And ground zero for a third of that business is the city of Tulare in the rich central California San Joaquin Valley where feed mills supply feed for 225,000 head of dairy cattle.
Bullock said central California uses about 2.3 million tonnes of barley – about the same amount as the southern Alberta feedlot market.
With more than half of American feed barley business done on the West Coast, Bullock said it was apparent the par delivery point for the contract needed to be Tulare.
But he added the MGE doesn’t intend to steal business from one of the Winnipeg Commodity Exchange’s most successful contracts, western barley futures.
The par delivery point for the WCE contract is Lethbridge, Alta. and lots are sized for trucks rather than rail cars. This makes the WCE contract hard to use for those aiming for the California market.
Mark Zenuk, manager of grain marketing for Saskatchewan Wheat Pool, said his firm will be watching the liquidity of the new contract, but has no plans to trade it yet.
“We’re waiting to see how the (U.S.) domestic industry and end users react to the contract,” he said, adding the company is still a supporter of WCE’s western barley futures.
Rhea Yates, spokesperson for the Canadian Wheat Board, said the board already uses the MGE spring wheat futures contract as well as the Chicago Board of Trade to hedge some of the wheat delivered to pool accounts, so it would be inclined to consider the new barley contract.
“If we wanted to use the risk management provisions of the futures market, then yes, we would look at it.”
