Open interest in western barley futures have declined to virtually zero, which would normally signal the end of the contract’s long and distinguished history is close at hand.
However, officials from ICE Futures Canada are not ready to give up on the contract quite yet and are working on ways to reinvigorate it.
Open interest in all western barley contracts declined to zero in the first week of the month when participants liquidated the remaining positions in the nearby December contract. Open interest in the March contract is currently sitting at a slim two contracts.
“No open interest in the commodity, generally means that the contract has failed as a price discovery instrument,” Ron Frost, an analyst with Frost Forecast Consulting, said.
“My feeling on the barley future is that it worked good when the contract was based off of Thunder Bay, but through the exchange’s fiddling with the specifications through the years, the future has become totally irrelevant,” Bill Craddock, a local Manitoba producer and an online commodity trader said.
Craddock noted that instead of using the futures market, barley producers now rely totally on the domestic cash market and in some cases look to the Canadian Wheat Board’s Pool Return Outlook predictions to get a feel of where values should be.
Craddock said the loss of the barley future as a viable pricing tool can also be linked to the large amount of distillers grain that is making its way from the U.S. ethanol sector into the western Canadian feed industry, which has eliminated the need of end-users to use the barley futures market.
The CWB’s control of the western Canadian producer barley in the global export market was also a factor behind the diminished usage of the barley futures market, brokers said.
ICE CANADA STILL HOPEFUL
The western barley future did go through an essential structuring about a year ago, and at that time the goal was to make the contract more closely resemble the domestic market, said ICE Futures Canada president and CEO, Brad Vannan.
He said that restructuring occurred as ICE Canada felt that it was unlikely that there was going to be any material changes to the way barley was traded in Canada.
Vannan also cited downsizing in the livestock sector. “There was a big surplus of barley around all of a sudden, the cash market also had very little volatility, which unfortunately resulted in very little need to hedge as there was very little price risk,” Vannan said.
Vannan said ICE Canada plans to be patient with the contract and hopes the trade will continue to support the commodity.
Unfortunately, the bad news is that the contract has failed to be a must-use tool for the feed grain and livestock industry, he said. Vannan said ICE Canada knows there are some disconnects between users and the barley contract that will need to be addressed. “We have already started the process of again consulting the marketplace to see if there are any further suggestions to improve the contract or to find out if the domestic contract is something that is needed in its current structure,” Vannan said.
He said ICE Canada was also looking at putting the commodity out in a different form. “The exchange can put out a variety of over-the-counter contracts, so there are a number of other options we can explore to offer the western Canadian barley market that may be more appropriate,” Vannan said.