Winnipeg Futures

[OneOfMany]

Thank You Ms. Tjaden Lepp!

5 Feb edition of the Western Producer
"Basis confusing but tells story"

"Why don't we politely ask the grain companies why they don't just switch to ICE futures" said Ms. Tjaden Lepp.

"They all sat down and designed it and now nobody's using it'

We all know the answer to that. The Grain Families have never had to go to the markets to raise capital to operate their billion dollar company's, its not in their interests to be transparent.

[Braveheart]

My memory is fading, but the de mutualized WCE launched the wheat futures contracts in anticipation of the loss of CWB monopoly, but also to make WCE more "valuable" to any interested buyers. The latter was no doubt more of a factor than a risk management platform.

[charliep]

I suspect the commericials would use ICE Futures Canada contracts if the volumes you were there. I still remember a conversation between a feed lot (big feed buyer) and a barley grower (experienced user of the tools for managing risk) about the ICE barley contract. Hard to hedge anything when you are the only ones doing the trading. Need market makers.

[Braveheart]

Volumes no doubt would help. Liquidity needed.

This was not a case of "if you build it they will come".

[jdepape]

charlie hit the nail on the head.

On new contracts, liquidity risk often outweighs basis risk.

[errolanderson]

yearn for the old Western Barley contract . . ..

It worked (based off the Lethbridge feedlot market) and it was used.

[bucket]

The use of TPOs or GPOs eliminated the use of the markets. Graincos know their sale volume and the price. They just need to give the farmers enough to be interested to sell. Usually a 25 cent premium will do.

ICE or winnipeg will never be functional.

[mcdon]

The ice wheat and barley contracts were designed by grain companies for grain companies. The old WCE was referred to as the "old boys club" and the ice contracts suffer from the same reputation. Funny how the last significant change to the canola contract was the result of work done by an outside consultant (move of delivery point, 1995).

[farming101]

Macdon, if the grain companies designed them for their benefit why aren't they using them?
They are at most times of the year in control of a larger portion of the grain in the system than anyone else.
Just asking.

[mcdon]

101
no one willing to take the other side. The western barley futures ended when a fund (Jim rogers) liquidated a large long position. The terms of the contract worked against the fund and in favour of the grain companies. A costly mistake by Mr. Rogers. Much better alternatives for funds.

[Oliver88]

What volume is required to get HRS contracts functioning on ICE?

What was a typical volume when the Western Barley was active?

[farming101]

Thanks.
Would the someone needed to take the other side in the absence of speculators have to be producers? Or would foreign buyers ever see an opportunity with a made in Canada futures price? I don't really want to open up the fx debate right now!
Also, even though most times commercials are short the market, is there a time when another grain company may be interested in taking the other side of a position?

[mcdon]

101
grain companies are typically the predominant short. On the long side you need end users, millers/feedlots etc. As an end user I would be not use the contracts if only because of the situation with the railways, don't know when or if product can be moved after standing for delivery. Also, terms of contract favour short as alluded to in Jim Rogers experience. Need an outside/unbiased consultant to design contract if it has any chance. Barley functioned (sort of) with volumes of 1-2000/day.

[mbdog]

For Winnipeg to work you need liquidity from somewhere and/or a uniquely Canadian product/market/brand.
Current volatility is adding greater risk to producers but also to buyers/processors/consumers/investors. I think this grows through time as production risk and food security issues grow.
Western barley contract could be revived if stars line up...a western feed index/complex??? maybe a "CWB" component could get attached to current wpg wheat specs if that brand really carried any weight in the trade/world. Need some trade soverienty issues/uniquely Canadian elements and/or disconnect somewhat from US wheat markets. I like the push towards developing a marketing instrument focussed on promoting/hedging Canadian quality.

[farmaholic]

mbdog, extracting premiums from perceived "quality" Canadian wheat in a race to the bottom commodity pricing structure is probably quite difficult. And under this new marketing regime, if there is ever much of a premium to be extracted, how much of it do you think will trickle down to the farm gate?