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ICE Canada Barley Contract Languishing

Open interest in the ICE Futures Canada barley market has declined to where the contract is no longer a viable pricing option, despite recent efforts made by ICE Canada to raise its appeal to a broader range of participants.

But the contract is not likely to be delisted any time soon; ICE Canada is still hopeful that a change in the outside market conditions would reinvigorate the barley futures.

As of March 11, 2010, total open interest in the ICE barley futures stood at only 21 contracts, far from the 4,463 contracts held at the same time the previous year, and even further from the 15,879 open positions held at the same point in 2008, according to ICE Canada data.

A number of futures traders expressed disappointment and discouragement with the declining fortunes of the barley market, especially as changes were recently made to the contract in an effort to increase participation.

“I gave up on it a few months ago,” said one Winnipeg-based feed grains trader, noting that the futures were no longer reflecting the actual cash market and the open interest wasn’t at a critical mass in order to make it a viable contract.

Dave Guichon, a Lethbridge, Alberta, cash broker with Ag Value Brokers, said that while the revised contract was more relevant to the Alberta barley market, the lack of volumes limited the potential for risk management in the futures.

Starting with the November 2009 contract, the ICE Canada barley contracts now use the key Lethbridge, Alberta feeding area as the delivery point. The contract was also made more transparent and balanced, after consultations with a broad range of industry participants.

“I think we came up with a pretty attractive contract that was accessible to a broader participant base in Western Canada,” said ICE Futures Canada president and CEO Brad Vannan.

He said the problem has more to do with market conditions that were outside of the exchange’s control.

Vannan said the current conditions in the Western Canadian barley cash market lessened the need for risk management through the futures. Cattle numbers have been steadily declining, while feed grain supplies are large. In addition to the ample barley supplies, feedlots are also bringing in excess durum and corn DDGS.

The lack of an open export market for barley, with the Canadian Wheat Board maintaining a monopoly on export sales, was also cited by traders as a factor.

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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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