It was a cold, dark morning about 10 days ago when I walked in to work and saw a couple of things that made me nostalgically sad, and to ponder the fate of old, broken down structures. As a few flakes of unseasonal snow fell on my oddly short and messy hair and I came up towards Portage Avenue I noticed that I didn’t see something, and that was the hulking bulk of the old Winnipeg Arena looming behind the Polo Park mall. It was demolished last year.
After a few miles of treading towards Portage and Main I came across a half-done demolition – the United Army Surplus store – and this sent my mind wandering down some of the back alleys of memory. I recalled the time, in 1983, when some high school friends and I got on the Greyhound in Regina and headed for Winnipeg to see (and I apologize for my youthful bad taste here) a Genesis concert at the Winnipeg arena. We stumbled off the bus at Polo Park at 8 a.m., feeling rather ragged and drymouthed, threw our bags into the hotel room there and decided to walk downtown for some breakfast and liquids. We hadn’t realized downtown was three and a half miles away. It was a long journey for a bunch of guys who had been jolting along the Trans Canada Highway all night, trying to keep down the previous evening’s party refreshments. And we suffered. But eventually, after much stumbling, we came near the beginning of the downtown core, and there it was: the Taj Mahal of army surplus clothing. Which we were into at the time.Â
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Regardless of our tiredness, my buddies and I spent an hour sorting through real, cast off army gear, the sort of stuff that for some reason seemed cool at Grade 11 parties. We went back to Regina, after the big concert at the Winnipeg Arena, with the kind of gear that you just couldn’t get in that much smaller city six hundred K west.Â
Now both of those structures are gone. The arena was demolished and replaced with a much better hockey rink and concert venue downtown. I went to a few hockey games at the arena – it was a terrible place where beams and bars and low bits of the roof get in the way of the action below. The new arena’s fantastic. The United Army Surplus store went bankrupt, after running down for years and losing many of its customers, including me, who had bought camping gear there over the years but had switched to Mountain Equipment Coop and other specialty stores. The rundown building had an asbestos problem.
So now they just live in the past, living in dimly held memories of people like  me and replaced with better engineered, more useful structures. Their role and function died, and society threw up better structures.
The images of the Winnipeg Arena’s decline and demolition and the failure and demolition of the United Army Surplus store floated around in my mind as a metaphor for a futures market theme I’ve been pondering recently, which is what happens when a derivative structure ages and begins to fail in its function. For years that was almost a yearly story at the Winnipeg Commodity Exchange, where one contract after another (peas, flax. oats) stumbled and died, mourned but not really seen worth saving. The industry and the market had moved on and the old structure, used for generations often, just didn’t serve a valuable purpose any longer. And last year there were big problems with the Chicago Board of Trade wheat contract, which showed up to two dollar per bushel divergences from the underlying cash market.
American futures market specialists are trying to renovate that aged structure in order to save it, trying to reconfigure the contract to reflect the realities and meet the needs of the current soft winter wheat market which it was not designed for. It was designed for the times when all the grain flowed to Minneapolis and Toledo, not New Orleans.Â
Looking at these problems, some see the solution being a fixing of the contract. Others say the market will evolve – in fact already has evolved – other mechanisms and structures to fill in the gap. An agricultural economist told me a welter of new cash contracts have sprung up that are serving farmers well.
Another structure that’s looking sound for American producers, but could start failing for Canadian farmers, is the Chicago Mercantile Exchange lean hogs contract. It’s still working fine, hedgers and risk managers tell me, but country of origin labelling is very new and its implications are unknown. Canadian and U.S. pigs are still bought and sold in the same North American marketplace, so CME lean hogs provide a good price base for Canadian producers, and that’s what Canadian packers rely upon.
But if COOL restructures the North American hog market and pig herd, and breaks it into two, with Canada being forced to evolve its own independent marketplace, will those CME lean hog prices still reflect the new northern market’s reality? Will producers trust it? Will packers use it? That’s something being pondered by one hog risk management professional I know.
CME lean hogs aren’t going to go anywhere if Canada is forced to evolve an independent hog market. But Canadians may need to evolve their own hog hedging mechanisms that operate independently of CME lean hogs if things go bad. What form could those take? Who knows? Could be a futures contract, or could be a lattice of cash contracts. Anyone’s guess.
But markets often evolve faster than the old market mechanisms, and evolve new structures when the old ones are running down, or failing to fulfill the new functions, and generally – if not always – for every eroding or lost structure there are better, newer replacements.
But still, looking at the big, flat, dusty and weedy lot where the Winnipeg Arena used to stand, or the big hole in the ground where the United Army Surplus store stood until this spring, or an old list of defunct futures contracts at the WCE (itself renovated and replaced by the ICE), it’s hard not to feel a little wistful and nostalgic. The world isn’t necessarily worse for their passing, but something has been lost regardless, even if it’s only as a peg for memory of a past age.
