ICE barley lacks interest, but no de-listing yet

(Resource News International) — Open interest in the ICE Futures Canada barley market has declined to the point where the contract is no longer a viable pricing option, despite ICE’s recent efforts to make the contract more appealing to a broader range of participants.

While traders were generally disappointed with the lack of liquidity in the futures market, the contract is not likely to be de-listed any time soon, as Winnipeg-based ICE Futures Canada is still hopeful that a change in outside market conditions would reinvigorate barley futures.

As of March 11, total open interest in the ICE barley futures stood at only 21 contracts, a long drop from the 4,463 contracts held at the same time the previous year, and even farther from the 15,879 open positions held at the same point in 2008, according to ICE data.

A number of futures traders expressed disappointment and discouragement with the declining fortunes of the barley market, especially as changes were recently made to the contract in an effort to increase participation.

“I gave up on it a few months ago,” said one Winnipeg-based feed grains trader, noting that the futures were no longer reflecting the actual cash market and the open interest wasn’t at a critical mass in order to make it a viable contract.

Dave Guichon, a Lethbridge, Alta. cash broker with Ag Value Brokers, said that while the revised contract was more relevant to the Alberta barley market, the lack of volumes limited the potential for risk management in the futures.

Starting with the November 2009 contract, the ICE barley contracts now use the key Lethbridge feeding area as the delivery point. The contract was also said to be made more transparent and balanced, after consultations with a broad range of industry participants.

“I think we came up with a pretty attractive contract that was accessible to a broader participant base in Western Canada,” ICE Futures Canada’s CEO Brad Vannan said.

While interest in the barley futures has declined sharply, “I’m not at the point where I’ve lost faith in the contract structure,” Vannan said, adding that he has not received any negative feedback on the structure of the barley contract itself. Rather, he said the problem with barley had more to do with market conditions that were outside of ICE’s control.

“Even in the best conditions it takes the concerted efforts by a number of interested participants to make a contract work, there’s no question about that,” said Vannan. The commodity exchange’s role was to put together a fair contract, but it was up to other participants to actually trade it, he said.

Current conditions in the western Canadian barley cash market lessened the need for risk management through the futures, he said, noting that cattle numbers have been steadily declining, while feed grain supplies are large.

In addition to the ample barley supplies, feedlots are also bringing in excess durum and corn DDGS (dried distillers grains with solubles). “All those things are keeping a lid on the feed market and has created a market where feed values are fairly flat,” said Vannan.

Connection wanted

The lack of an open export market for barley, with the Canadian Wheat Board maintaining a monopoly on export sales, was also cited by traders as a factor behind the lack of activity in the futures market.

Vannan agreed, noting a number of international companies had expressed interest in trading the barley futures if there was more of a connection to the export market.

However, “I don’t know if the exchange, on its own, can come up with solutions to these bigger fundamental issues that the industry is facing,” he added.

Federal Agriculture Minister Gerry Ritz has recently discussed reopening the debate on making changes to the CWB. “We won’t see any de-listing until something is resolved there,” said a feed grains broker, adding that “I don’t think they want to take that contract down, even though it’s basically non-functioning and not trading right now.”

Vannan said there was no current plan to de-list the barley contract, with the hope being that the market would eventually come back to a point where risk management was needed again.

“We can maintain the contract as long as there are people telling us that there will be a need for it,” said Vannan adding that “we’ve put our effort into it now, and it doesn’t cost the exchange a lot of money to keep it listed… I just hope we can maintain some level of support until the conditions become more favourable for the contract to come into its own.”

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