Electronic Trading - Better or Worse

[wd9]

Will the WCE going electronic in December be a benefit (improve liquidity and price discovery, more trades) or will it be a detriment?

[charliep]

WD9

Thanks for asking the question. It is very relevant as we move ahead.

What are others thoughts? Are there things that should be done at the WCE to make this price discovery/risk management tool more relevant to your business?

[TOM4CWB]

Charlie;

Is the WCE really interested in what farmers need?

1. Easy delivery against the futures would make this tool much more relevant to our farms.

2. A basis contract spec. like MGE is doing... that allows us to hedge basis, or buy our basis back when a cash sale is made, would be a valuble addition to our risk management tool box!

[melvill]

tom, I looked at the MGE web site and oculdn't find a "basis contract spec" as you called it. The MGE has an index futures. Is that what you're referring to?

Point me to the basis spec.

[chaffmeister]

Lee:

The index contract is likely what Tom is refering to as a basis contract. According to the MGEX website, "The National Corn Index (NCI)... is a simple average of elevator bids collected each day." Contracts are available for other grains.

The concept of the contract is to track cash prices and provide a liquid cash hedging mechanism. As a corn farmer (for example), to hedge (protect) just the basis, suggest you could sell the index and buy CBOT corn futures. The net result would be a sale (hedge) of the basis.

I personally like the idea of indices to get away from the whole delivery mess.

[melvill]

Yes, chaffmeister, I like the idea of an index (or cash settled) futures, too, to get away from the delivery mess. You know me, I'm not happy with the incredibly cumbersome process for delivering against WCE canola, for instance. With canola, I heard a woman, who's familiar with it, describe it as "as painful as childbirth". Now there's a mouthful. A cash-settle futures, which is much like what an index is and which the US feeder cattle futures actually is, would solve a lot of problems.