[UPDATED: May 17, 2018] This week a chapter in the agriculture history of Manitoba quietly closed.
Winnipeg has loudly proclaimed itself the heart of Canada’s grain trade since the early days of commercial agriculture on the Prairies.
Nothing represented that more than the trading of grain-based derivatives, an important economic activity in the downtown core for over 130 years.
In 1887, just two years after the last spike of the Canadian Pacific Railway was driven and the Riel Rebellion was suppressed in Saskatchewan, the Winnipeg Grain and Produce Exchange was founded.
For nearly 20 years that entity operated as a cash market for grains that had already been grown, rather than the futures market. It was only in 1904 that a futures market for wheat was established. Later that year oats and flaxseed got contracts. Barley followed in 1913 and rye in 1917.
The Winnipeg exchange is the only agricultural commodities exchange and futures market in Canada. A voluntary, non-profit, unincorporated association, it had as many as 330 members at its peak, including elevator companies, grain merchandisers, exporters, overseas importers and even a few farmers.
Wheat futures trading was suspended in 1942 as the Canadian Wheat Board marketing became compulsory in 1943 to facilitate Canadian sales to Britain during the Second World War.
In 1963, the exchange launched a rapeseed contract, which as the Cinderella crop became the widely traded canola, became its bread and butter, and in 1972 the exchange rebranded itself the Winnipeg Commodity Exchange.
Over the years gold, feed wheat for domestic use, silver, Government of Canada bonds and T-bills and lumber were also traded.
The only one that ever really stuck, however, was the canola contract, leading to lingering questions about the viability of an exchange with just one truly active contract.
This past week the latest organization to oversee that activity, the Atlanta-based Intercontinental Exchange (ICE) answered that question, announcing it was moving all trading to its New York-based electronic platform effective July 29.
The announcement bent over backwards to assure market participants they would see no change, touting the move as largely a housekeeping issue and that traders who participate in the market would see “zero change” on their computer screens.
There’s likely more than a little truth to ICE’s claims. After all, the open-outcry trading method long seen in film and television has been a thing of the past since December of 2004.
That’s when the WCE made the move to online, at the time a groundbreaking decision. It was the first commodity exchange in North America to move over to a fully electronic trading platform.
Then many market observers noted that the impact for farmers and processers who relied on the contracts to hedge risk would be negligible and even positive. Where it would be most felt was with the traders themselves, many of whom would find themselves looking for new employment as the electronic platform proved to be more efficient.
Most would concede that’s exactly what happened. Any issues that have cropped up — scant liquidity or funds affecting prices, for example — seem to have been related to either the nature of the canola contract itself or part of broad secular trends not confined just to this exchange.
There will obviously be some effects from the move to New York but ICE, which has owned the operation since 2007, insists that at least some of them will be positive.
Officials are touting a deeper liquidity pool, lower administrative costs and a more diversified risk management pool as obvious positives. They also note that, from a practical standpoint, the contract specifics will remain the same, quoted in Canadian dollars, with the same delivery points.
Others are striking a more cautious tone. Some market participants note that U.S. regulators will now oversee trading, which could make for some changes that are as yet unforeseen. It will also open the market to more traders, which could mean commercial clients will no longer require a Canadian intermediary to execute their trades for them.
One thing that will definitely be affected is ICE’s local operation. It will be reduced to a skeleton staff of just two, from the current 14 employees. Those remaining employees will provide local input into the structure of the canola contract to ensure it remains relevant.
Just what this will mean for Manitoba isn’t yet clear. The grain industry will remain a fixture in downtown Winnipeg for the foreseeable future. Major grain companies maintain a presence and groups such as the Canadian Grain Commission and Cigi will provide an anchor.
But that activity will remain quietly behind closed doors and on computer screens, not as public and prominent as it was during that storied past.
[UPDATE] We incorrectly noted the Winnipeg Canola contract was moving to New York effective July 1. In fact it is moving as of July 29.