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ICE Canada To Trade Wheat As Monopoly Ends

ICE Futures Canada will launch spring wheat and durum contracts early next year to take advantage of Ottawa’s planned dismantling of the Canadian Wheat Board’s grain monopoly, its chief operating officer said on May 19.

The spring wheat contract will compete for liquidity with one offered by the Minneapolis Grain Exchange, but will also complement it, while the durum contract will be the only one in the world, said ICE Canada president and chief operating officer Brad Vannan, in an interview with Reuters.

The re-elected Conservative government is aiming to eliminate the board’s marketing monopoly on Western Canada’s wheat, durum and barley in August 2012, the start of Canada’s 2012-13 marketing year. It has not said if it will end the monopoly in stages.

Expansion of ICE Canada’s all-electronic futures offerings are the first signal of an overhaul of Western Canada’s grain-marketing system, which has operated under the wheat board’s monopoly since the Second World War.

CME Group Inc. is also preparing to open a wheat futures market next year in Ukraine.

With grain companies like Viterra, Cargill Inc. and Richardson International Limited allowed to buy directly from farmers, they will need more futures tools to hedge their crop price risk, Vannan said. Building liquidity in a new contract will be a challenge, however.

“It’s like pushing a boulder over a hill,” Vannan said in ICE Canada’s Winnipeg office. “For every step forward, you probably take two steps back. And then you get over the crest and it starts picking up.”

Currently, the wheat board hedges risk from buying spring wheat on the Minneapolis exchange. However, the MGEX contract is based on a spring wheat variety grown in the northern U.S. Plains, uses U.S. dollars and has U.S. delivery points.

A Canadian spring wheat contract would have a closer connection to the cash prices grain handlers pay farmers, Vannan said.

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