MGEX announces changes to HRSW contract

[SASKFARMER3]

MINNEAPOLIS, MINNESOTA, U.S. — MGEX
announced on Jan. 19 that it received
regulatory approval from the Commodity
Futures Trading Commission (CFTC) for
changes to its flagship hard red spring
wheat (HRSW) contract.

Approval means the U.S. origin condition
will be removed from the HRSW contract,
ensuring spring wheat market
participants from around the world can
choose to deliver spring wheat in
satisfaction of open MGEX HRSW futures
positions. The removal of the U.S.
condition is effective with the
September 2012 contract month.

Deliveries must meet all HRSW contract
specifications and grades. The CFTC
approval came after an in-depth
regulatory review. A multi-phase
approach to ensure the HRSW contract
meets the needs of the global
marketplace was announced by the
exchange in August 2011.

In addition to the removal of the U.S.
origin condition, MGEX also announced it
has added a deoxynivalenol (vomitoxin)
specification to the HRSW contract
effective with the May 2013 contract
month. The new specification is a 2
parts per million (ppm) maximum for
spring wheat delivery. Vomitoxin levels
above 2 ppm will be delivered with a 20¢
per bushel discount.

Levels exceeding 3.0 ppm vomitoxin will
not be deliverable on the HRSW contract.
The change will continue to showcase the
HRSW futures contract as the foremost
quality wheat contract available to
global market participants.

Further, the exchange announced a change
in storage rates for spring wheat
delivery on the HRSW futures contract.
Rates will increase from the 5¢ per
bushel per month to 7¢ per bushel per
month effective with the May 2013
contract month.

“Given the changes, worldwide wheat
market participants can be certain the
MGEX spring wheat contract will continue
to represent their market interests and
fulfill their risk management needs,”
Mark G. Bagan, chief executive officer
and president, MGEX said. “On behalf of
the MGEX management team, I would like
to publicly thank our Contracts
Committee and board of directors for
their dedication to our flagship
contract and ensuring it meets global
risk management needs. This is a
significant step in cementing the MGEX
hard red spring wheat contract as the
world’s premium quality wheat contract,”
Bagan said.

[SASKFARMER3]

Charlie is this going to effect the
canadian contract or will it kill it? or
am I off Base?

[bucket]

P&H is at $7.30 limited tonnage Aug thru Oct.durum.

[charliep]

Very rare that anyone will deliver against a futures contract so somewhat a mute point. You would also have to read the full contract specifications and delivery against futures rules (I haven't) as well as other rules regarding homeland security and necessity to segregate non US wheat for aid programs/other things. It will provide more discipline to keep MGEX in line with Canadian prices and competition for the ICE futures Canada contract.

One of my interesting things over the past few weeks is to sit beside farmers who are getting daily new crop wheat quotes over their smart phones. Will be interesting to see which companies start quoting prices and basis off ICE Canada wheat futures. I think this is where things have to start to get ICE futures Canada wheat and barley futures rolling. Speculative trade and off shore customer use will take time - particulary with an inland delivery price that they may or may not be comfortable (off shore buyers will be more interested in Vancouver prices). Having said, canola futures with a Saskatoon delivery areas seem to work okay .

[bucket]

I think the durum contract will work very well based out of winnipeg. It may be similar to canola in time.

[charliep]

Listened to a presentation from MGEX yesterday and their challenges with getting a durum contract going. The biggest challenge is concentration - there are only 2 major durum millers in the US. Canada only processes a miniscule amount of durum. Your next challenge is to get Italian millers interested in managing their risk using this contract.

Your other customers are north Africa. Don't suspect they will be heavy users of the contract.

Way off topic but CIGI is doing some interesting things to develop new uses for durum in noodles. They called in sandwiching but rolling out a layer of dough made from prairie spring, a layer from semi lena/durum dough and finally a prairie spring one. some of the benefits of the nice texture/mouth feel from prairie spring in a noodle and some other benefits from a durum pasta properties/taste.

[FarmRanger]

What have the Italian / north African buyers done
before this to manage risk? I'm assuming that if
they buy through the middleman companies
(Cargill, Viterra, etc.), then those companies
would be the ones hedging those contracts on the
commodity exchange?

[bucket]

The north african countries bought through the cwb. Remember the "special deals" the cwb had afforded (on the backs of canadian farmers) Algeria for the purchase of durum.