Winnipeg Futures

[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?

[mcdon]

mbdog,

I think your idea of a uniquely Canadian product follows the product differentiation strategy. However it could serve to restrict the deliverable supply (no product outside of Canada deliverable) which could affect convergence between cash and futures. Also, given the state of the transportation system, don't think the export market considers Canadian grain with the same regard as it did 25 years ago.

Re western barley futures; The first prerequisite for designing a futures contracts is the existence of a commercial need for it. i.e. commercials must be willing to assume both long and short positions, their motive is usually referred to as price risk. I don't think their is the willingness on the part of the feedlot sector to manage risk via the western barley futures as it stands right now. No commercials willing to assume a long position means no contract.

[charliep]

There are feedlots in Alberta who run pretty sophisticated risk management programs for their feed grains and I think would use. They use CBT corn today with all the challenges. Their comment again is that it is hard to use a market when there is no volume.

[jdepape]

mcdon:
WCE canola change - maybe I'm just getting old but I don't recall any outside consultants designing the canola contract. WCE hired Dr. Craig Pirrong to review the issues around the old contract ("what went wrong") but he did not design the new contract. BTW - Craig is without doubt the preeminent expert on futures design.

The delivery mechanism was unique when we designed it. Now its used by CBOT on their redesigned contracts.

101:
graincos aren't using them because no one else is. Liquidity. Graincos and farmers are natural shorts - end-users need to be comfortable using it. And it has little to do with them standing for delivery; it has more to do with correlations.

Other potential longs include specs, funds and "prop traders". I was trying to generate some interest with a couple of prop traders in Chicago - they were keen to trade ICE Milling Wheat as a spread against MGEX or CBOT - to them it would be a quality and FX (sorry) play. But they didn't have a good handle on what the underlying cash grain was trading for - so no idea what the ICE contract should trade for. (Not once did they say they were concerned about delivery.)

mbdog:
The ICE Milling Wheat contract was designed as a Canadian alternative to MGEX. Different grades, different currency and different delivery.

Interesting note - some commercials wanted to have it trade in USD because "wheat is ultimately traded in USD and farmers don't care about FX". I think we can tell from a previous thread that farmers DO care about FX. If we had made it trade in USD, and the trade used it, we'd be having the same discussion around FX and basis. Clearer heads prevailed.

[errolanderson]

In its hayday, Western Barley was one of the most efficient futures contracts in North America.

An Alberta farmer would short (sell) Western and a company like Sask Pool would come and pick it up in the yard. There was simply no need for elevators. I was very proud of the contract, but maybe it's fault is it worked too well.

Loss of Western Barley was a huge loss growers and feedlots.

[mcdon]

At the end of the day (approx. 2007) the long side of the western barley futures was made up of almost exclusively a long fund(s) position. As I mentioned above you cannot expect a futures contract to work efficiently if you do not have a commercial content on bot sides. The question should be "why did feedlots stop using it ?". Jim rogers experience should shed light.

JD, re funds using ice, no fund in their right mind is going to start using a contract without commercials on both sides, no way of calculating risk. I f they had no questions on delivery , they are sitting ducks. NEED COMMERCIALS ON BOTH SIDES FIRST.