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 at the annual Wild Oats Grainworld conference in Winnipeg, Feb. 25, to highlight the benefits of their futures and options markets.

The CME Group, which owns both the Chicago Board of Trade and the recently acquired 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, senior director of grain and oilseed products with CME Group.

In addition to the futures and options, a benefit of hedging through the CME Group is 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. He noted that there is a high correlation between the high-protein spring wheat traded on the Minneapolis exchange and the Canadian crop.

Poor liquidity

ICE Futures Canada obviously has the contracts that are closest to the Canadian situation, but the futures have suffered from poor liquidity since first being introduced in January 2012.

Brad Vannan, president and COO with ICE Futures Canada, said that while the volumes are still lacking, the wheat futures do have a high correlation with the cash market. He said 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 and remained optimistic that volumes would eventually come to the Winnipeg-based exchange.

Vannan pointed to the success of the ICE Canada canola contracts. “We believe that in time, we’ll see some of that success in our wheat contracts.”

The European Matif milling wheat futures provide a good comparison to the Canadian situation according to an example provided by Vannan. He noted that the Matif futures took six years before seeing any noticeable volumes, and 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 U.S. 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.