IntercontinentalExchange (ICE) marked the impending end of Western Canada’s grain monopoly and the start of competition with the Minneapolis Grain Exchange when it launched new Canadian wheat, durum and barley futures and options contracts in Winnipeg on Monday this week.
ICE Futures Canada’s milling wheat contract will compete for trades with the Minneapolis (MGEX) hard red spring wheat contract, of which the Canadian Wheat Board has been one of the biggest users.
The new contracts will trade in Canadian currency and utilize Canadian delivery points.
“Canadian futures contracts will represent this important production region better than other markets do because they’ve got a strong connection with the underlying marketplace,” said Brad Vannan, president and chief operating officer of ICE Futures Canada, in a news conference last Thursday.
ICE Futures Canada, previously called the Winnipeg Commodities Exchange, is best known for its successful canola contract.
The wheat board will lose its monopoly in August, pending court challenges of a new Canadian law. Grain companies, farmers and processors are already signing forward-delivery contracts for the former CWB grains, setting up new demand to manage price risk.
“I think there’s a lot of interest in the (ICE) wheat contract,” said Ken Ball, commodity futures and options broker at Union Securities in Winnipeg, adding that grain companies and farmers are keen to use it.
ICE has structured the milling wheat contract at 100 tonnes per lot, similar to the size of wheat contracts on U.S. exchanges, making it easy for traders to simultaneously buy and sell different contracts to profit on the difference, Ball said.
“(ICE is) hoping to tap into that circle of spreading between Canadian wheat and U.S. wheat,” he noted.
Canada is the world’s second-biggest producer of spring wheat (after Russia) and durum (after the European Union).
The MGEX said Jan. 19 it was adding more quality rules to its spring wheat contract as it heads off competition from ICE.
MGEX said the U.S. futures regulator, the Commodity Futures Trading Commission, approved its request to allow the delivery of non-U.S. wheat for the first time against its 129-year-old contract.
“We made the changes to our contract to ensure that we have the best premium-quality wheat contract in the world,” said MGEX spokeswoman Rita Maloney. “Because our contract has traded consistently for 129 years we have established open interest, we have established volume (and) liquidity, and we feel confident that the global marketplace will recognize our spring wheat contract as that premier wheat contract.”
It will be critical that the new ICE contracts attract decent trading volume early, Ball said, since investors are leery of markets with light, volatile trading.
The barley contract may be more tenuous than wheat as ICE has long struggled to attract trading in its existing barley contract, Ball said.
The possible weakness of the durum contract is that it is tied to a relatively small crop.
Volatility may be ahead for many commodity markets, said analyst David Hightower, who took part in ICE’s news conference.
“Every commodity going forward is going to have its day in the sun,” he said. “This demand pull from the world, particularly in specialty geographic isolated product commodities, we’re going to see wild reactions.”