Revised ICE Canada Barley Futures Should Help Price Discovery

The newly revised Western barley contracts on the ICE Futures Canada platform are slowly building their open interest and should eventually provide a better mechanism for price discovery and risk management, according to traders and industry participants.

The revised barley contracts started trading June 22 with the November 2009 contract the nearest month. The major change in the new futures was moving the delivery point from Saskatchewan to southern Alberta, where the bulk of barley is fed in Canada. Open interest has slowly increased in the two weeks the new contracts have been available.

“They’ve made it more reflective of the feeding area of Western Canada,” said Jerry Klassen, a Winnipeg-based grains analyst and trader. “The futures market is starting to do its job, and is becoming more of a price discovery for the main feeding area,” he added.

Dave Guichon, head of the Feedlot Strategies division with Ag-Value Group Inc. in Lethbridge, Alberta, said the new contract will be good for price discovery and risk management. “With the new contract, we should see more and more people use it in time,” he said noting that market participants in Alberta will start to look at the contract as means for hedging themselves. “It should be more reflective of the cash market, because of the delivery point being in southern Alberta,” said Guichon.

While only a few hundred contracts have traded so far, Ken Ball of Union Securities described it as “a reasonably successful start for barley.” He added that traders will be waiting for open interest to increase before they get more comfortable, but “obviously people are poking their toes in there and getting their fingers dirty.”

Open interest in the old October contract remains above 2,000, which participants will eventually be looking to move into the new futures. Ball said the barley market could see some gyrations between the old October contract and the new November contract as they near expiry, and traders figure out how to arbitrage between the two.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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