Written by Kelvin Heppner

Monday, 23 January 2012

http://www.portageonline.com/index.php?option=com_content&task=view&id=25476&Itemid=469

ICE Futures Canada is launching its new futures contracts for milling wheat, durum and barley today.

Brenda Tjaden-Lepp, Senior Analyst with FarmLink Marketing Solutions, says she's optimistic the market will be sustainable.

"Initially when ICE announced the contracts, there were a lot of people saying 'it's never going to work, Minneapolis is fine, may as well trade Chicago,' but I've heard a big shift in that kind of talk. It's really changed over the last few months and now I would give the contract a good chance of success," she says.

"I think people are really coming on board. There's just a lot to learn...initial reaction to this particular aspect of this change, I think we know a lot more now about what's going to be important," she says.

There will be some growing pains in the near term, says Tjaden-Lepp, but eventually producers should see more consistency between different companies' contracts as they shift to using the Winnipeg futures as a starting point for pricing.

"After we've been through some iterations of getting in and out of the market and seeing what's working, it stems to reason that we could see more consistent grades," she says. "Right now that's something to work around...everybody is working in their own different supply chains. We're seeing cash bids simply backed off of an end-use market."

"That's not necessarily ideal...but with a futures market in between, and that learning process underway, I think we'll end up seeing less variability in bids. It will be good when we get to the point where there's one benchmark grade and then fairly standard discounts and premiums," says Tajden-Lepp. "They'll change in response to supply and demand, but today we can't make any sense of those changes whatsoever."

""Right now the majority the cash contract parameters are built on the Minneapolis futures, and basis levels into port position, and backed off into the interior," says Greg Kostal of Kostal Ag Consulting. "I think there is a willingness to use that (the ICE Futures contracts) as a lead price discovery mechanism, it will just be dependent on whether the buyers and all market participants want to use it."

"I think there will be a willingness to show greater transparency basis that type of contract, some companies are still going to be interested in basis using Minneapolis," says Kostal. "I think it just underscores the variability between grain buyer, grain location, wheat type, and how people will be managing risk."

Tjaden-Lepp and Kostal both shared their perspective on the new Winnipeg futures at Manitoba Ag Days last week.