New wheat marketing system to influence futures trading

Wheat futures on multiple trading platforms can expect to see some changes now that western Canadian producers are able to freely market their grain, industry officials said.

Prior to Aug. 1, the former Canadian Wheat Board held a single-desk monopoly over the sale of wheat, barley and durum in Western Canada. But now farmers across the Prairies have the freedom to market their wheat how they wish.

The Minneapolis Grain Exchange (MGEX) had already reported an increase in open interest for wheat futures in a news release on Aug. 1. However, officials from the MGEX were not able to confirm whether or not more Canadian involvement was the reason for the increase.

Jerry Klassen, manager of Gap SA Grains and Produits in Winnipeg, said the change in the marketing system could also impact the volume of wheat futures traded on the MGEX.

"You might see a little bit more volume in the Minneapolis (MGEX) futures because individual companies are hedging their purchases and sales on it," he said.

The new marketing system probably won’t prompt any change on the ICE Futures Canada trading platform because bigger companies will choose to use MGEX instead as it is more "liquid" right now, he said.

However, ICE Futures Canada CEO Brad Vannan said the change in the marketing system will be helpful toward futures trading for the Canadian contracts.

"The change in the marketing system will impact the cash market, which will in turn influence what happens in the futures market as well," he said. "I think because you’ve got more participants and broader choice, the cash market in Western Canada will become much more dynamic.

In the longer term, Klassen said, the ICE Canada trading platform will grow more in volume and interest, but it will take time before it gets to the same level as the MGEX.

"Needs"

Vannan said it’s essential to have a Canadian trading platform for wheat, barley and durum futures because the Canadian market is geographically separate from the U.S. markets.

"It’s important that Canada has a tool that is more specifically designed to meet the needs of this market rather than rely on one that was designed for an entirely different marketplace," he said.

It is possible for Canadians to utilize the U.S. markets, but they don’t "do as good a job" as the Canadian market does, he said.

Canadian investors will benefit from using the Canadian trading platform because it will help reduce their risk, Vannan said.

"Because the Canadian contract is designed to reflect the Canadian cash market, I think what users of the Canadian futures contract will find over time is that you have a stronger relationship between the Canadian futures and the Canadian cash market," he said. "And that should translate to having less risk."

U.S. customers who are looking to export Canadian grain to foreign destinations will also benefit from reduced risk in the Canadian market, Vannan said.

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

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