ICE remains optimistic on Prairie wheat, durum, barley

Milling wheat, durum and barley futures contracts on the ICE Futures Canada trading platform have failed to attract any kind of significant trading interest but officials with the exchange remain optimistic that the contracts will become viable risk management tools.

Activity in the milling wheat, durum and barley contracts on the Winnipeg-based exchange’s platform has been extremely sporadic since they were listed on Jan. 23. Open interest in all three commodities is confined to the two nearby months and was seen as minimal at best.

"There have been discussions held with a subsection of the group who helped create the milling wheat, durum and barley
contracts in hopes of kick starting the use of these risk management tools," ICE Futures Canada CEO Brad Vannan said.

He said a number of items were discussed at the review meetings, which was described as an open dialogue. One such item examined closely was the structure of the contracts.

"We reviewed the structure of the contracts to determine if there was anything specifically wrong," he said. "We made only one small change and that was to the delivery grade on the spring wheat contract."

Vannan said a shift to a 13.5 per cent protein content from 12.5 per cent protein was the extent of the change.

"Everything was open to suggestion, but collectively the group said there were still confident in the structure and as a result no other changes were made," Vannan said.

Utilization of the contracts was also a concern and while there was acknowledgement that milling wheat, durum and barley were having troubles in attracting volume, more time will be given for participants to further learn about using those commodities as risk management options.

ICE’s milling wheat, durum and barley contracts started trading Jan. 23 — listings tied in part to the Canadian government passing legislation that officially ended the Canadian Wheat Board’s monopoly on the sale of Prairie wheat, durum and barley beginning with the 2012-13 crop year on Aug. 1.

"Liquidity"

Open interest in those futures has been hard to come by, with grain companies who were dealing with those commodities much more comfortable in using the U.S. markets as their preferred hedge tools, said Mike Jubinville, an analyst with ProFarmer Canada in Winnipeg.

The phrase "if not broke, why fix it" comes to mind, he said.

Market participants, meanwhile, feel that the commercials who helped design the contracts need to be the ones that start using the contracts on a regular basis.

"These commercials regularly use the U.S. markets, and while those positions may not be perfect, they are working," a trade source commented.

"Once there is liquidity in these commodities, then the speculators will start to use the contracts," Jubinville said.

While the volume and open interest in the wheat, durum and barley contracts are far from being where Vannan would like, more time will be given to develop these futures, he said.

"There needs to be the development of the cash market in a sound way and once that has occurred, the use of the futures will also grow," he said.

"I would say that the wheat market is still in its infancy, and there is still a lot of discovery going on," he said. "None
of the grain companies are approaching the task in the same manner with each having a different views on how to develop what is best for them."

Vannan was certain a standard will eventually be developed and once a successful program is created others will likely institute a similar system.

No time frame was given by Vannan as to how long ICE Futures Canada will be patient with the contracts. However, he also pointed out that the listing and delisting of a futures contract was something not taken lightly — and that all avenues will be explored before any kind of decision is made.

– Dwayne Klassen writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.