Race heats up to launch Canadian grain exchanges
JAVIER BLAS
LONDON— Financial Times
Published Wednesday, Oct. 19, 2011 4:30PM EDT
Last updated Thursday, Oct. 20, 2011 7:14PM EDT
The end of the Canadian Wheat Board’s monopoly has triggered a race to develop futures contracts for the country’s farmers between the Winnipeg-based ICE Futures Canada and the U.S.-based Minneapolis Grain Exchange.
The battle between the two small commodities exchanges is the latest sign of how the end of the CWB’s monopoly next year would revolutionize the agribusiness sector in the world’s fourth-biggest wheat and fourth-largest barley exporter.
The CWB has enjoyed a monopoly to trade wheat and barley from the Prairie provinces of Western Canada since 1942. But the reigning Conservatives introduced legislation on Tuesday to end it by August, 2012, although the CWB is battling the move.
ICE Futures Canada on Wednesday said it would launch milling wheat, durum wheat – used mostly for pasta – and barley futures contracts if the monopoly ends as expected.
The exchange, owned by Atlanta-based IntercontinentalExchange (ICE-N125.31-2.93-2.28%) since 2007 and formerly known as the Winnipeg Commodities Exchange, said it planned to list the new contracts for delivery in October, 2012.
ICE will compete against the Minneapolis Grain Exchange, which in August said it would allow the delivery of Canadian wheat against its 128-year-old U.S. spring wheat contract from mid-2013.
The MGEX has until now banned the delivery of non-U.S. wheat against the contract, a benchmark for bread bakers.
The new ICE contract will be denominated in Canadian dollars, creating an advantage against the MGEX’s contract, which is denominated in U.S. dollars.
But the MGEX could still attract business from Canada on the back of the liquidity of its well-established contract, which is widely used by traders in the U.S. Midwest.
Industry executives and analysts said that the end of the CWB’s monopoly would pave the way for big traders such as U.S.-based Cargill, Archer Daniels Midland, Bunge, Geneva-based Louis Dreyfus Commodities and Glencore to buy cereals directly from Canadian farmers, boosting the need for hedging.
But Dan Basse, of consultants AgResource in Chicago, warned that the farmers would need time before they felt comfortable about using futures contracts for hedging.
“It is going to be a learning curve for them,” he said, warning that, in Australia, where the government dismantled a few years a similar wheat board, futures trading has not picked up.
Brad Vannan, president of ICE Futures Canada, said, nonetheless, that market participants had expressed substantial demand for global benchmark futures contracts designed specifically for Canada.
“These contracts recognize Canada’s central role in the global agricultural marketplace and they serve an essential role in providing transparent price discovery and risk management tools,” he said.
The battle for CWB echoes the fight when Australia dismantled the country’s grain monopoly, the Australian Wheat Board, in 2008, which has reshaped the country’s agribusiness industry.
Cargill, the world’s largest agricultural commodities trader, bought AWB and rivals such as Viterra, GrainCorp, Glencore, Nidera, Toepfer and Bunge entered the market, although wheat futures traded in Australian exchanges have not seen a meaningful pick-up in activity.
Copyright The Financial Times Ltd. All rights reserved.
JAVIER BLAS
LONDON— Financial Times
Published Wednesday, Oct. 19, 2011 4:30PM EDT
Last updated Thursday, Oct. 20, 2011 7:14PM EDT
The end of the Canadian Wheat Board’s monopoly has triggered a race to develop futures contracts for the country’s farmers between the Winnipeg-based ICE Futures Canada and the U.S.-based Minneapolis Grain Exchange.
The battle between the two small commodities exchanges is the latest sign of how the end of the CWB’s monopoly next year would revolutionize the agribusiness sector in the world’s fourth-biggest wheat and fourth-largest barley exporter.
The CWB has enjoyed a monopoly to trade wheat and barley from the Prairie provinces of Western Canada since 1942. But the reigning Conservatives introduced legislation on Tuesday to end it by August, 2012, although the CWB is battling the move.
ICE Futures Canada on Wednesday said it would launch milling wheat, durum wheat – used mostly for pasta – and barley futures contracts if the monopoly ends as expected.
The exchange, owned by Atlanta-based IntercontinentalExchange (ICE-N125.31-2.93-2.28%) since 2007 and formerly known as the Winnipeg Commodities Exchange, said it planned to list the new contracts for delivery in October, 2012.
ICE will compete against the Minneapolis Grain Exchange, which in August said it would allow the delivery of Canadian wheat against its 128-year-old U.S. spring wheat contract from mid-2013.
The MGEX has until now banned the delivery of non-U.S. wheat against the contract, a benchmark for bread bakers.
The new ICE contract will be denominated in Canadian dollars, creating an advantage against the MGEX’s contract, which is denominated in U.S. dollars.
But the MGEX could still attract business from Canada on the back of the liquidity of its well-established contract, which is widely used by traders in the U.S. Midwest.
Industry executives and analysts said that the end of the CWB’s monopoly would pave the way for big traders such as U.S.-based Cargill, Archer Daniels Midland, Bunge, Geneva-based Louis Dreyfus Commodities and Glencore to buy cereals directly from Canadian farmers, boosting the need for hedging.
But Dan Basse, of consultants AgResource in Chicago, warned that the farmers would need time before they felt comfortable about using futures contracts for hedging.
“It is going to be a learning curve for them,” he said, warning that, in Australia, where the government dismantled a few years a similar wheat board, futures trading has not picked up.
Brad Vannan, president of ICE Futures Canada, said, nonetheless, that market participants had expressed substantial demand for global benchmark futures contracts designed specifically for Canada.
“These contracts recognize Canada’s central role in the global agricultural marketplace and they serve an essential role in providing transparent price discovery and risk management tools,” he said.
The battle for CWB echoes the fight when Australia dismantled the country’s grain monopoly, the Australian Wheat Board, in 2008, which has reshaped the country’s agribusiness industry.
Cargill, the world’s largest agricultural commodities trader, bought AWB and rivals such as Viterra, GrainCorp, Glencore, Nidera, Toepfer and Bunge entered the market, although wheat futures traded in Australian exchanges have not seen a meaningful pick-up in activity.
Copyright The Financial Times Ltd. All rights reserved.
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