CHICAGO, Aug 26 (Reuters) – The Minneapolis Grain Exchange, home to U.S. spring wheat futures, is betting on the demise of the Canadian Wheat Board and trying to head off competition from the IntercontinentalExchange (ICE.N) by accepting non-U.S. wheat for delivery against its 128-year-old contract, traders say.
"You’ve got a lot of eyes focused on Canada with the potential of the Canadian Wheat Board going away. With that, you’re going to open up a lot more commercial trade," said Scott Cordes of grain brokerage Country Hedging and a member of the MGEX board of directors.
The Conservative government in Ottawa will use its majority in the House of Commons to end the Canadian Wheat Board’s monopoly on marketing wheat and barley, Agriculture Minister Gerry Ritz said in May with the changes effective August 2012.
The MGEX board of directors voted on Aug. 16 to allow non-U.S. wheat for the first time, notably from Canada — the world’s top producer of high-protein spring and durum wheat.
The issue has aroused some deep soul-searching among U.S. farmers, who traditionally have complained loudly against the CWB, a secretive government-sponsored seller. But CWB has also traded big volumes on MGEX for decades, grain traders say.
"It’s just an example of what’s coming, cross-border competition in a market that previously had no competition and used Minneapolis. The Canadian Wheat Board is probably the biggest user of Minneapolis," said one MGEX member.
The smallest U.S. wheat exchange — after the Chicago Board of Trade (CME.O) and Kansas City Board of Trade — is seen wanting to widen its hedging appeal, providing Canadian farmers an established and liquid hedging alternative when Canadian wheat contracts on the IntercontinentalExchange’s (ICE) Futures Canada exchange, now scheduled for debut in January 2012.
The MGEX change would be effective "no later than" with the May 2013 contract month, the exchange has said.
"This is just the first step in a multi-step process that our contracts committee is going through to ensure the spring wheat contract is adaptable to the changing global environment of wheat," said MGEX spokeswoman Rita Maloney.
GRUMBLING IN THE RANKS
Even if the MGEX’s big idea to allow in foreign wheat makes economic sense, the devil may be in the details, traders say.
MGEX members have been told they have until Sept. 1 to vote to remove the rule that for decades has blocked foreign wheat from delivery, and that the Board amended. But exchange officials call that Sept. 1 member vote "house-keeping."
MGEX traders and members say questions remain.
"Non-U.S. origin was the first easy step — it was something a large number of people agreed with. It wasn’t everybody by a long shot," said Helen Pound, a trader and wheat analyst with Penson Futures in Minneapolis.
"It’s a lot tougher to get consensus around those other possibilities," Pound added.
The idea that Canada’s huge crop could be delivered against MGEX values — in theory, pressuring U.S. prices — gives U.S. farmers pause, some traders and analysts said. The cash market specifics of grain grades, inspections and so on also matter.
MGEX grain traders told Reuters they wanted the exchange to consider Canadian delivery points, like Thunder Bay, Ontario, to better meet the ICE proposal head-on. Delivery points at U.S. West Coast ports was another debatable point, as was the specific deadline to introduce the change.
"They should have been a whole lot more specific to state the month in which it was going to take place," one grain trader said, suggesting that if the CWB monopoly survives then Canadian wheat could still end up in MGEX warehouses.
"There’s no transparency," the trader said.
All foreign wheat delivered against the MGEX contract whether it comes in from Canada, Australia, or another non-U.S. origin must be inspected by the Federal Grain Inspection Service and meet MGEX delivery specifications for U.S. No. 2 or better northern spring wheat, 13.5 percent protein or higher.
"The exchange should make it be pretty dang clear how you would go about incorporating Canadian wheat into the delivery mechanism with a U.S. grade on it," the trader added.
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