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As Wheat Board shrinks, new grain contracts appear

When the only buyer of wheat and barley in Western Canada was the Canadian Wheat Board, there was no need for a futures market in those grains.

With the Wheat Board losing its monopsony, ICE Futures Canada -- the former Winnipeg Commodity Exchange -- is set to list three new futures contracts to help farmers and grain handlers determine pricing and hedge.

ICE Canada said it got Manitoba Securities Commission approval to list contracts for milling wheat, durum wheat and barley. The contracts are expected to be listed in January, once the Bill to end the Wheat Board's dominance is enacted.

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Starting in January, Canadian farmers will be able to buy and sell wheat and barley futures contracts on the ICE Canada exchange.

Futures contracts enable traders to set the price they are willing to pay for wheat, or receive for their production, months in advance. That enables farmers to lock in pricing and manage risks associated with selling in the open market, risks they didn't face when the Wheat Board was setting the price.

ICE Canada already lists a canola contract that's popular, and plans to model the new contracts on that one.

There will be competition, however, as the Minneapolis Grain Exchange is also planning to allow Canadian farmers to deliver grain against its spring wheat contract starting in 2013.

ICE Canada has two advantages -- a head start, given that its product is likely to be up and running sooner, and the fact that its contract will be denominated in Canadian dollars. Minneapolis's contract trades in U.S. dollars, meaning farmers will have to deal with exchange rate fluctuations or find a way to hedge the dollar exposure, creating additional costs and headaches.

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