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Grainworld: Best wheat futures markets for Canada debated

After decades of marketing wheat through the Canadian Wheat Board's single desk, the western Canadian grain sector is still working out the best way to hedge the commodity, seven months into the new open market.

Representatives of the CME Group, Minneapolis Grain Exchange (MGEX) and ICE Futures Canada were all on hand here Monday at the annual Wild Oats Grainworld Conference to highlight the benefits of their futures and options markets.

CME Group, which owns both the Chicago Board of Trade and, since last year, the Kansas City Board of Trade, is by far the winner when it comes to volumes, with 88 per cent of the wheat traded globally executed through CME Globex, according to Susan Sutherland, the company's senior director of grain and oilseed products.

In addition to the futures and options, benefits of hedging through the CME Group include the numerous additional pricing options, including futures spreads, weekly wheat options, short-dated options and calendar spreads, that are not available on other exchanges.

The MGEX can't boast the sheer volumes of Chicago, but business development specialist Joe Victor noted that with 6.12 billion bushels of hard red spring wheat futures traded on an annual basis, that represents roughly five times the total North American spring wheat production.

Victor noted a high correlation between the high-protein spring wheat traded on the Minneapolis exchange and the Canadian crop.

ICE Futures Canada obviously has the contracts that are closest to the Canadian situation, but the futures remain very illiquid after first being introduced in January 2012.

The Winnipeg exchange's president, Brad Vannan, said that while the volumes are still lacking, the wheat futures do have a high correlation with the cash market.

The fact that commercials have taken deliveries against both the spring wheat and barley contracts was a sign that they were "testing" the market to see how it works, he said, and remained optimistic that volumes would eventually come to the Winnipeg-based exchange.

Vannan pointed to the success of ICE Canada's canola contracts. "We believe that in time, we'll see some of that success in our wheat contracts."

The European Matiff milling wheat futures provide a good comparison to the Canadian situation, according to an example provided by Vannan.

He noted the Matiff futures took six years before seeing any noticeable volumes, then suddenly started to rise.

What happened there was the emergence of the Black Sea as a major wheat export region and the need for a futures market more directly relating to the European market, especially when the US wheat futures were relatively stable.

Vannan foresaw a similar situation in the North American context, with spring wheat area shifting north, which will make Canadian-based contracts more important.

-- Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.


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