Open interest tiny amid CWB doubts, timing

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After nearly four weeks of trading, open interest is tiny in the new milling wheat, barley and durum futures and options contracts, even as farmers, grain companies and end-users look to manage price risk this year with the Canadian Wheat Board monopoly ending.

“I don’t think it’s fair to say we were looking for a lot of liquidity at this point in time with the contracts,” said Brad Vannan, president and chief operating officer for ICE Futures Canada.

“The futures are a reflection of the marketplace as a whole, and if that marketplace hasn’t had a chance to fully hatch yet, the futures will also reflect that.”

Open interest in ICE’s milling wheat futures contract was 80 contracts on Feb. 8, compared with open interest of 187,475 in ICE Canada’s long-running canola contract.

The durum contract had open interest of 52 contracts and the new barley contract had 120.

The lack of trading activity, a pending court ruling that could derail the law ending the single desk, and widespread dryness across the Prairies just two months prior to planting are all considered factors holding back the new contracts.

So far, the industry has little reason to take futures positions in the new contracts which start with October delivery, said Keith Bruch, vice-president of operations at grain handler and miller Paterson GlobalFoods.

“Buyers are bearish, farmers are bullish and so there just isn’t much liquidity in the marketplace,” Bruch said. “So that’s the catch-22 — getting over that hump of confidence. You need liquidity to trade and to get that liquidity, you have to trade.

“It’s too early to reach a conclusion on (the contracts).”

Local speculators are especially unlikely to trade the new contracts until they can exit positions the same day, said Bill Craddock, who currently trades the ICE canola contract.

Even though the ICE grain contracts are the only ones listed in Canadian dollars and with Canadian delivery points, competition is stiff. The Minneapolis Grain Exchange has tweaked its spring wheat futures contract to allow delivery of wheat from outside the U.S., and officials are travelling to Winnipeg this month to drum up business.

On the positive side for ICE, the new contracts’ prices accurately reflect the market, and trading volume should pick up as farmers and grain companies sign more supply deals for 2012 crops, Vannan said.

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