ICE planning spring wheat, durum futures contracts

ICE Futures Canada is preparing to offer separate spring wheat and durum futures contracts if the federal government follows through with its plan to end the Canadian Wheat Board’s monopoly on the marketing of those commodities. 

“We would be remiss in our duty if preparations were not in place for this potential inevitability,” ICE Futures Canada CEO Brad Vannan said in a telephone interview.

The spring wheat and durum contracts would initially be set up like the canola future which has been very successful, he said. 

“We are currently discussing the tooling of the contracts with producers, processors and grain handlers, but the basic structure will resemble canola,” Vannan said.

The CWB’s monopoly on marketing western Canadian wheat and barley may end by the Aug. 1, 2012 start of the 2012-13 crop year if Canada’s recently elected majority Conservative government follows through on its intentions.

After his reappointment Tuesday as federal minister of agriculture and agri-food, Gerry Ritz said legislative changes would be introduced to the House of Commons in the fall of 2011 in order for them to be in place in time for the start of the 2012-13 crop year.

Ritz was quoted recently by media outlets as saying that the  government was already working with grain industry stakeholders on the best way to go forward with doing away with the CWB’s single-desk marketing powers.

While supporters of the CWB maintain that the loss of the  single desk would spell the end of the CWB, Ritz has said that  a voluntary board would still have a future in the marketing of western Canadian grain.

“Will depend”

“I can’t give you a firm launch date as the implementation of the futures contracts will depend on a number of items,” Vannan said. 

The finalization of the contract’s design, making sure the proper IT (information technology) work has been completed, and the implementation of the federal government’s plan will determine when exactly the contracts are launched, he said.

“However, our plan is to have the contracts in place prior to the Aug. 1, 2012 start of the crop year,” Vannan said.

The proposed spring wheat and durum contracts have already received support from the majority of the interested parties that have been approached.

“I think farmers are very interested in these kinds of contracts as it brings with it a high degree of transparency into the Canadian marketplace, Vannan said. “Grain handlers and the domestic processors are also very supportive of these contracts because of the transparency but also because it provides a great hedge vehicle.”

The contracts will also provide a means to limit foreign exchange risk and a vehicle to manage inventory costs, he said.

As for competition from the spring wheat contract in Minneapolis, Vannan felt there was room for both in the marketplace.

The size of the U.S. spring wheat and the western Canadian spring wheat crops are similar in size, but the difference is the regions in which those crops are grown, Vannan said.

“The geographical areas of the spring wheat crops are subject to different weather patterns with the grades of the spring wheat contracts also quite different,” he said.

Vannan acknowledged that arguments have been presented that having two spring wheat contracts would dilute the marketplace. However, he also pointed out that there have also been strong arguments that there will be some synergies between the two marketplaces as well as some arbitrage.

“More international”

The end of the CWB’s monopoly on barley is also expected to revitalize demand for ICE Futures Canada’s western barley contract, Vannan said.

“If the federal government achieves its goal, then barley will also become potentially more international in nature and attract some renewed attention,” Vannan said.

“The contract will then require some retooling probably back to its original design when talk of an optional barley market in Western Canada was almost realized a few years back.”

In conversations with barley handlers and malting barley processors, they have indicated this would be a real opportunity to regenerate demand in the barley future and were very supportive of this potential development, he said.

“The malt barley processors are not specifically looking for a malting barley future, but they are very interested in having the ability in which they can base some production contracts,” Vannan said.

“The maltsters have been looking for a way to get closer to farmers and if these changes occur, it would allow them to enter into direct relationships with producers on a supply basis as well as a forward price.”

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