* CME Group, MGEX, ICE wooing grain industry in Winnipeg
* End of Wheat Board monopoly put risk business up for grabs
* MGEX open interest up sharply from 2012 low
By Rod Nickel
WINNIPEG, Manitoba, Feb 27 Seven months after
the Canadian Wheat Board's 69-year-old marketing monopoly ended
and Western Canada's wheat went up for grabs, much of the risk
business associated with buying and selling it has fallen to the
Minneapolis Grain Exchange.
The Wheat Board, which was one of the world's biggest grain
marketers, hedged much of the price risk on grain it bought from
farmers in Minneapolis (MGEX), and also on the Chicago Board of
Trade and Kansas City Board of Trade.
But the end of the monopoly splintered the CWB's former risk
management business across a larger number of grain marketers
and buyers, leaving those exchanges plus new contracts from ICE
Futures Canada to fight for trading volume.
Canada's spring wheat crop in 2012/13, the first after
Ottawa scrapped the monopoly, produced unusually high, uniform
quality. That feature has directed much of the risk management
business to MGEX, whose hard red spring wheat contract closely
resembles the profile of Canadian spring wheat, said the head of
one of Canada's medium-sized grain handlers.
"Because of that homogeneity, I think that this year in
terms of Canadian hedge participation, Minneapolis has been a
clear winner," said Brant Randles, president of Louis Dreyfus
Canada Ltd, the Canadian division of the privately held global
commodities trader. "In another year where we might have highly
varied qualities, I think all exchanges could benefit."
Louis Dreyfus Canada uses MGEX, the CBOT and Kansas Board
of Trade (both of which CME Group owns) and when there's
liquidity, ICE Futures Canada's Canadian wheat contracts for
hedging and proprietary trading, depending on the wheat class,
Randles said in an interview.
Canada is the world's second-largest producer of spring
wheat, used for baking, and the No. 6 grower of wheat overall.
The three exchanges brought their sales pitches to the
Canadian industry this week at the Grainworld conference in
Winnipeg, a forum where U.S. exchanges were seldom seen before.
MGEX has seen its spring wheat futures open interest climb
by more than one third from its low in 2012 to around 43,000
contracts, said James Facente, its director of market
operations, clearing and information technology.
"I can say with certainty that there are many Canadian
participants in our market and much of the open interest gains
we have seen is in direct correlation with the changes in the
Canadian marketplace," Facente said.
The big three Canadian grain handlers Viterra, owned by
Glencore International PLC, Richardson International
Ltd and Cargill Ltd are all active at MGEX, he said.
The spring wheat MGEX trades follows a similar growing
season and has similar characteristics as the Canadian harvest,
unlike winter wheats traded in Chicago and Kansas City.
The CME Group's Chicago Board of Trade may not trade the
same kind of wheat, but as the world's wheat price benchmark it
offers unmatched liquidity.
Adding in the recently acquired Kansas City Board of Trade,
CME controls 81 percent of the world's wheat futures volume and
89 percent of wheat options, said Susan Sutherland, senior
director of grain and oilseed products, in a presentation at
Grainworld. The conference was attended by grain companies,
analysts, traders and farmers.
"The recent addition of (Kansas) wheat products to our deep
and liquid Chicago soft red winter wheat futures and options
offerings will provide new trading opportunities for market
participants both in Canada and around the globe," said Tim
Andriesen, CME Group's managing director of agricultural
CME Group declined to comment on the level of participation
from Canada since the wheat monopoly ended.
ICE Futures Canada, the Canadian arm of Atlanta-based
IntercontinentalExchange Inc, entered the ring with new Canadian
milling wheat and durum contracts 13 months ago. Canadian
traders already know ICE well for its popular canola contract , but the new offerings have been all but ignored.
Open interest in ICE Canadian wheat and durum is a paltry 36
contracts combined, representing 3,600 tonnes of crop.
Brad Vannan, president and chief operating officer of ICE
Futures Canada, compared the Canadian contracts with Paris-based
wheat contracts, which took years to gain traction.
"It takes time for a market to fully comprehend and respond
to changes," he said. The advantages ICE offers include Canadian
delivery points and currency.
The ICE contracts have also suffered from the high quality
of the Canadian crop, which narrowed the cash price range
between feed and milling wheats and left less risk, he said.
Randles of Louis Dreyfus Canada agreed that the new ICE
contracts may attract interest over time.
"People haven't had time to focus on ICE because we're
trying to make this transformation to an open cereals market.
Secondly, they'll look at how we can support the new contracts."