ICE’s grain futures waiting on cash market

Trade in milling wheat, durum, and barley contracts on the ICE Futures Canada platform remains slow, but officials at the Winnipeg-based arm of IntercontinentalExchange remain confident liquidity will build in the new contracts over the next few months, as the cash market also takes shape.

Legislation passed by the Canadian government in December 2011, ending the Canadian Wheat Board’s long-standing single-desk marketing powers for wheat, durum, and barley in Western Canada as of Aug. 1, 2012, created the need for new price discovery options in the open market.

ICE Futures Canada began trading milling wheat, durum, and barley contracts in January, but only new-crop contracts are available and open interest has been slow in growing.

"The cash market is also very slow in developing," said Brad Vannan, president of ICE Futures Canada, noting the CWB still has a monopoly over the spot cash market until Aug. 1, which makes it difficult to frame a cash market. In the absence of a significant cash market on the grains, he expected that futures trade will continue to be slow.

"As we move beyond August, and the entire marketplace opens up, that will allow the cash market to develop more robustly and I would expect the Canadian futures market will start showing some heightened activity," said Vannan.

The wheat, durum, and barley contracts move in relation to the bids and offers, he said, even if no trades actually take place. In some cases the bid offer spread is quite wide, but the cash market is also wide. "I think we’ve been able to provide a reasonably good reflection of the cash market," said Vannan.

The grain trade is working actively to get into the position to operate under the non-single desk environment, and the new futures contracts may not be the most urgent thing at this time, said Vannan. "Everyone I’ve talked to is still very keen about the opportunities coming forward."

The contracts were opened back in January to show support for the new system, he said, knowing that it would be slow going until the cash market developed. "We’re just starting to see the leading edge of that."

With recent changes to the trading hours at the Chicago Board of Trade and other US markets, ICE Futures Canada is doing consultations with various committees that sit on the exchange, and are gathering feedback from user groups to determine what they want to do, if anything, said Vannan.

"We didn’t want to make any snap decisions, because it can be a burden on our participants," he said, noting ICE Canada "will wait until things settle down, and then take into account everything we know and proceed appropriately."

Most of the controversy in the U.S. was around the earlier opening, and Canada’s hours already cover that time frame. The only change now will be in expanding the afternoon close, as the U.S. futures now trade electronically until 2 p.m. CT.

ICE Futures Canada is currently open from 7 p.m. CT to 1:15 p.m. CT the following day.

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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