Comments on the WCE Move to Electronic Trading

[charliep]

Just looking for peoples thought on the WCE move to electronic trading after one month of trading experience.

[TOM4CWB]

Charlie,

I found it reassuring to phone the floor, and be given a real time estimate on where a low volume market might trade IF I were to put a order in.

I can not see how this is possible today.

In these low liquid markets in Canada, feed grains in particular, this appears to put us in a real pickle. Option trades are my main concern.

[Everest]

What I find disturbing, is not so much that trading has moved to an electronic platform, but that canola (and flax, and feed grains) pricing seems to be being done inside black box. Cash markets are disconnected from futures markets. Basis is highly variable, and irrational. For example, this year we produced 7.7 mmt of canola, a 14% increase over last year and the 2nd highest on record. Carryout is perhaps going to be as high as 1/5 mmt. Yet the basis this year is $30-45 less than a year ago, with ½ the carryout.

I doubt electronic trading has anything to do with this. I think contract design is much more problematic. There is no effective way to encourage convergence of cash and futures prices. The WCE canola futures market is not an effective hedge for anyone. As a result producers are forced to take a lower price because that is how and where risk is being absorbed. It cannot be effectively transferred through the futures market.

I am not a supporter of marketing boards of any description. However, when farmers can't see how prices are discovered, when prices can't be rationalized with fundamentals, and when they are forced to accept lower returns because of an inefficient market, they take matters into their own hands. Is it time for a new and better way to market our canola? Is there any appetite among farmers to initiate a new pricing and marketing institution that better serves our needs?

[TOM4CWB]

Everest;

On CBC as it happens, last night; they talked about Enron.

Alberta was the discussion in the electrical de-regulated market... late 90's.

In one day Enron extracted $65 million extra, out of Alberta through fraudulent means. Electronic trading programs, coupled with fraud; were a prime reason they could do this.

Large volumes through mega players create these opportunities.

Now: how do we farm these market opportunities?

We MUST market and price when futures are profitable... and not sell when an obvious discounted futures market exists!

This, is the only way our farms will remain profitable!

The CWB MUST do this as well, and in fact are in a much better position to do so.

The CWB has a huge risk management tool, with the pool of all "designated area" grain at their finger tips... for grade, for transport flex., for delivery spec and flex.

A proper CWB managed pool could make wheat and barley production VERY profitable in the CDN"designated area" with electronic trading and liquid markets prices these tools provide!

Wisdom in Risk Management... not speculation... is where we MUST concentrate for profit on our grain farms!


BUT:

If we did this, what would happen to our domestic grain consumers?

They would be BROKE... unless they do the same risk management on the other side for themselves!

Now Everest:

How many marketers can put this package together?

I know of one in IP Canola who is doing it now; but no one else is doing so... because a monopoly is needed to handle the risk!

[Vader]

Tom, are you suggesting that the CWB have a monopoly over canola marketing?

[TOM4CWB]

Vader;

I grow IP Canola that is managed by a muli-national monopoly player and am VERY happy.

If the CWB dealt with farmers with 1/10th of the integrety these folks have... there would be no argument about profit, price, responsible risk management, or need to be changing CWB marketing policy.

It is all about respect for each other... and freedom of choice.

Now Vader... is the CWB willing to respect farmers; consult, be honest, stop discrimination, stop alienation, stop monopolistic profiteering and follow the golden rule?

How about having an OPEN strategic planning session NOW with us, and resolve these above noted problems?

Same on the CWB election process; what is the CWB going to do to open this process up, and fully resolve this issue?

Actions, Honesty, and good faith are required.

I am to be a fruit judge...

PLEASE give me some reason to begin rebuilding the trust we must have... to rebuild our rural communities.

[Lifer]

Will Electronic trading add any more volume to canola trade. I'm not sure.

A lot of our neighbors when talking about the price of canola are talking about what they can get for the physical crop. The futures market doesn't seem to be in their radar.