Canada: ICE announce their intention to enter Canadian grain market

ICE Futures Canada is all set to become a player in the soon-to-be competitive market for wheat and barley sales in Canada, Financial Post reported on October, 19.

The subsidiary of U.S.-based Intercontinental Exchange Inc. announced on October, 19 their intention to introduce new futures contracts for milling wheat, durum wheat and barley, if federal legislation proposing an end to the Canadian Wheat Board’s long-standing monopoly for sales and marketing of Canadian wheat and barley is approved.

“These contracts recognize Canada’s central role in the global agricultural marketplace and they serve an essential role in providing transparent price discovery and risk management tools,” said Brad Vannan, President and Chief Operating Officer of ICE Futures Canada.

“Domestic and international market participants have expressed substantial demand for global benchmark futures contracts designed specifically for Canadian milling wheat, durum wheat and barley. We will continue to work with the industry and regulators as these contracts are developed.”

ICE, which was created following the acquisition of the Winnipeg Commodities Exchange in 2007, said the new milling wheat, durum wheat and barley contracts will be modelled on its canola futures contract, which has annual trading volume in excess of 4 mln contracts or 80 mln tonnes.

The milling wheat and durum wheat contracts will be 100 tonnes in size, while barley, like canola, will be 20 tonnes. All of the contracts will be priced in Canadian dollars.

ICE said it expects to publish contract specifications pending regulatory approval from the Manitoba Securities Commission. Following approval and enactment of Bill C-18, the exchange expects to list the new contracts for delivery in October 2012.

While a new competitive landscape for wheat and barley will give western Canadian farmers more choice to sell their crops, it will also potentially impact larger agricultural firms such as Viterra Inc.

Robert Winslow, an analyst at National Bank Financial, estimates the elimination of the Canadian Wheat Board could help Viterra, a grain handler and marketer of agri-products, realize approximately C$57 mln of additional annual EBITDA by fiscal 2013 owing to market share gains.

On the other hand, he said that working capital needs would increase by at least C$500 mln.

“We suggest elimination of the CWB would be largely neutral for Viterra value creation,” he said in a note to clients, maintaining his underweight rating and C$9 price target.

21 October, 2011