WINNIPEG – Not all industry players are pleased with the Winnipeg Commodity Exchange’s announcement it will contemplate moving the price reference point for its canola contract from Vancouver to a point in Saskatchewan.
A group of producers, shippers and former WCE officials tried to convince the board of governors that cash market activity at the port drives export and domestic markets.
The group supports proposed changes in delivery method. It believes the changes would be enough to restore the integrity of the contract and make the cash and futures price converge during the month of delivery, something they rarely do now.
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The group said all prairie crushers should be included as delivery areas against the futures contract, which when linked to Vancouver, will make the contract more useful to the domestic industry.
The group is hoping that technical committees studying the contract changes will take its concerns into account.
“We would like to see these improvements happen gradually and with appropriate study to determine that all industry participants are well-served, which of course must include farmers,” said Doug Sword.
Sword and Manitoba-farmer Paul Orsak sat on the canola task force as independent producers.
“Shifting the pricing point to inland in such a hasty manner is indeed alarming.”
Larry Martin, the consultant and agriculture economist who headed the task force and ultimately made the recommendations, said the cash price in Vancouver is “not reflective of the world. It’s reflective of the rather restricted market situation that we’ve got in Vancouver.”
He said even if delivery, storage and labor situations were improved in Vancouver, there would still be too much basis risk in the contract. The end of the Western Grain Transportation Act will lead to the port becoming less important in the future, Martin said, predicting that more than half of production will be crushed domestically, and more seed and oil will be shipped south.
“We are trying to design this contract for the future, not the past. I guess you want the market to efficiently discover a relevant price, and my perception is that the most relevant price is going to be on the Prairies.”
He said other consultants hired by the exchange in the past have made the same recommendation. He acknowledged there is some risk in moving the delivery point.
“It comes down to the question of what do you believe will be the behavior of people in the market and which of the alternatives carry the fewest negative implications for the most people,” he said. “You have to make a call. I made a call. And some others don’t agree with it, I guess.”
